<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 1996
REGISTRATION NO. 333-3790
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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CENTRAL FINANCIAL ACCEPTANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 6141 95-4574983
(STATE OR OTHER JURISDICTION (PRIMARY INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION
OF INCORPORATION OR CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
5480 EAST FERGUSON DRIVE
COMMERCE, CALIFORNIA 90022
(213) 720-8600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GARY M. CYPRES
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
5480 EAST FERGUSON DRIVE
COMMERCE, CALIFORNIA 90022
(213) 720-8600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copies to:
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<S> <C>
MICHAEL M. UMANSKY, ESQ. WILLIAM T. QUICKSILVER, ESQ.
STROOCK & STROOCK & LAVAN MANATT, PHELPS & PHILLIPS, LLP
2029 CENTURY PARK EAST 11355 W. OLYMPIC BOULEVARD
LOS ANGELES, CALIFORNIA 90067 LOS ANGELES, CALIFORNIA 90064
(310) 556-5800 (310) 312-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following
box. /X/
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
CROSS REFERENCE SHEET
BETWEEN ITEMS OF FORM S-1 AND FORM OF PROSPECTUS
(PURSUANT TO THE SECURITIES ACT OF 1933)
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FORM S-1 ITEM PROSPECTUS HEADING
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1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................ Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus................... Inside Front Cover Page and Outside Back Cover
Page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.... Prospectus Summary; Risk Factors; Use of
Proceeds
4. Use of Proceeds......................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price......... Outside Front Cover Page; Risk Factors;
Underwriting
6. Dilution................................ Risk Factors; Dilution
7. Selling Security Holders................ Not Applicable
8. Plan of Distribution.................... Outside and Inside Front Cover Pages;
Underwriting
9. Description of Securities to be
Registered............................ Description of Capital Stock
10. Interests of Named Experts and
Counsel............................... Not Applicable
11. Information with Respect to the
Registrant............................ Outside Front Cover Page; Prospectus Summary;
The Company; Risk Factors; The Reorganization
and Certain Relationships and Agreements
Among the Company, Banner, Holdings and
Other Affiliates; Dividend Policy; Selected
Financial Data; Supplemental Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Principal
Shareholders; Description of Capital Stock;
Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................... The Reorganization and Certain Relationships
and Agreements among the Company, Banner,
Holdings and Other Affiliates
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<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED JUNE 26, 1996
1,850,000 SHARES
LOGO
FINANCIAL ACCEPTANCE CORPORATION
COMMON STOCK
All of the shares of Common Stock, $0.01 par value per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by Central Financial
Acceptance Corporation (the "Company"). Prior to this Offering, there has been
no public market for the Common Stock. The Company was formed in April 1996 to
consummate the Reorganization. See "The Reorganization and Certain Relationships
and Agreements among the Company, Banner, Holdings and Other Affiliates." It is
currently anticipated that the initial public offering price will be between
$11.00 and $13.00 per share. See "Underwriting" for a discussion of factors
considered in determining the initial public offering price. The Common Stock
has been approved for quotation on the Nasdaq National Market under the symbol
"CFAC" subject to official notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS FOR A DISCUSSION
OF RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF COMMON
STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<CAPTION>
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
<S> <C> <C> <C>
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Per Share........................... $ $ $
Total(3)............................ $ $ $
</TABLE>
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $800,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
277,000 additional shares of Common Stock solely to cover over-allotments,
if any. If the Underwriters exercise this option in full, the Price to
Public will total $ , Underwriting Discount will total
$ and Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the Underwriters named herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that delivery of the certificates
representing such shares will be made against payment therefor at the offices of
Montgomery Securities on or about , 1996.
------------------------
MONTGOMERY SECURITIES
, 1996
<PAGE> 4
GRAPHIC ON THE TOP TWO-THIRDS OF INSIDE FRONT COVER PAGE:
Four graphs covering the changing ethnic profile in California for
the years indicated. The first graph shows a total California population in the
year 1980 of 23.7 million people, of which 19.0% or 4.5 million are Hispanic.
A second graph shows a total California population in 1995 of 32.7 million
people, of which 28.8% or 9.4 million are Hispanic.
A third graph shows a total estimated California population in 2005 of 38.3
million people, of which 33.9% or 13 million are Hispanic.
A fourth graph shows an estimated population change from the year 1980 to
the year 2005 of 14.6 million people, of which the Hispanic population accounts
for an increase of 8.5 million people or 58.2%.
TEXT ACCOMPANYING THE GRAPHS:
For the period 1980 - 2005, it is estimated that Hispanics will account
for over 58% of the population growth in California.
By the year 2005, Hispanics are projected to account for 33.9% of the
California population.
Hispanics are projected to continue to be the fastest growing minority
with a total population of 13 million by the year 2005.
GRAPHIC ON THE BOTTOM ONE-THIRD OF THE INSIDE FRONT COVER PAGE:
A drawing of the State of California next to a heading stating "Hispanic
Population for Regions of California Where the Company Operates 1996 (In
Thousands)." The following areas and Hispanic populations are indicated on the
drawing: San Francisco Bay Area, 1,120,000; Los Angeles, 4,185,000; Orange,
736,000; San Bernardino, 504,000.
GRAPHIC ON PAGE 2:
The Registrant's logo, "Central" and the names of each of its operating
subsidiaries, Central Installment Credit Corporation; Central Consumer Finance
Company; Central Auto Sales, Inc.; Centravel, Inc.; Central Financial
Acceptance/Insurance Agency and Central Premium Finance Company.
INSIDE BACK COVER PAGES:
A montage on the top half of the pages of seven photographs of customers at
various of the Company's locations and six photographs of six of the Company's
storefronts. On the bottom half of the pages, samples of four print
advertisements; one page from each of the consumer product finance, travel
finance, small loan and used automobile businesses.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. For purposes of this Prospectus, unless otherwise
indicated or the context otherwise requires, (i) the "Company" refers to Central
Financial Acceptance Corporation, its predecessors and its wholly-owned
subsidiaries, and (ii) the information herein (a) assumes that the Company has
been in existence and the Reorganization (as defined below) was consummated
concurrently with the 1991 Acquisition (as defined below) and (b) assumes no
exercise of the Underwriters' over-allotment option.
THE COMPANY
The Company is a specialized consumer finance company that primarily serves
the financing needs of the rapidly growing low income Hispanic population, a
market the Company believes is underserved. The Company served this market at
March 31, 1996 through 11 locations in greater Los Angeles and one location in
San Francisco. The Company (i) purchases and services consumer finance
receivables generated by the Company's customers for purchases of high quality
brand name consumer products, appliances and furniture sold by Banner's Central
Electric, Inc. ("Banner"), (ii) originates and services consumer finance
receivables generated by the Company's customers for purchases of used
automobiles and airline tickets sold by the Company, and (iii) provides other
financial services to its customers such as small loans. The Company has catered
to the low income Hispanic population during its 40 years of operation by
locating its facilities primarily in Hispanic communities, by advertising in
Spanish, and by employing Spanish as the primary language at its locations.
While the Company operates primarily in greater Los Angeles and faces
substantial competition with respect to its lines of business, the Company's
objective is to become the leading provider of consumer credit and other
financial services to the low income Hispanic population in urban areas within
California and elsewhere in the United States.
The Company's customers are typically between the ages of 21 and 45, earn
less than $25,000 per year, have little or no savings, and limited or short-term
employment histories. In addition, the Company's customers typically have no
prior credit histories and are unable to secure credit from traditional lending
sources. The Company makes its credit decisions on its assessment of a
customer's ability to repay the obligation. In making a credit decision, in
addition to the size of the obligation, the Company generally considers a
customer's income level, type and length of employment, stability of residence,
personal references and prior credit history with the Company. As a result, the
Company is more susceptible to the risk that its customers will not satisfy
their repayment obligations than are less specialized consumer finance companies
or consumer finance companies that have more stringent underwriting criteria.
See "Risk Factors -- Credit Risk Associated with Customers; Lack of Collateral"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Segment Data -- Credit Quality."
Since 1950 Hispanics have been the fastest growing minority group in the
United States, increasing from 4 million in 1950 to approximately 27 million in
1996, a compound annual growth rate of 4.3%, and, according to the 1996 U.S.
Bureau of the Census Current Population Report (the "1996 Report"), this trend
is expected to continue. The 1996 Report projects that the Hispanic population
will total 36 million by 2005. California is home to the largest Hispanic
population in the United States and this population is estimated to grow from
9.4 million in 1995 to 13 million by 2005, at which time it will comprise
approximately 34% of California's total population.
Recognizing these demographic trends, current management acquired the
operations of Banner in 1991 (the "1991 Acquisition") through Banner Holdings,
Inc. ("Holdings"), the sole shareholder of Banner. At such time, Banner operated
a retail business and a consumer credit business through a single location in
downtown Los Angeles. Banner's retail business consisted of the sale of consumer
products, appliances and furniture, while the consumer credit business offered
Banner's customers financing and related credit insurance for the merchandise it
sold. Holdings' strategy since the 1991 Acquisition has been to identify new
financial products and services that Holdings believes could be introduced
successfully to the low income Hispanic population in urban areas within
California. Since 1991, Holdings has grown primarily as a result of
3
<PAGE> 6
the introduction of such financial products and services and increased pricing.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Segment Data -- Analysis of Changes in Net Interest Income."
Holdings' most significant growth has occurred as a result of the introduction
of unsecured small loans in the fourth quarter of 1992, a product which the
Company believes offers significant growth potential. At March 31, 1996,
Holdings had 59,000 small loan accounts, as compared to 55,000, 26,000 and
11,000 at December 31, 1995, 1994 and 1993, respectively. In 1995, Holdings
began offering company-financed sales of used automobiles and airline tickets.
In addition, by March 31, 1996, Holdings had expanded Banner's retail business
to six retail stores in greater Los Angeles and one store in San Francisco, and
the Company had opened four small loan and travel centers and one used
automobile facility in greater Los Angeles. See "-- Recent Developments." At
March 31, 1996, the net carrying value of the Company's receivable portfolio was
$89.9 million, consisting of $51.6 million in the portfolio of consumer product
contracts (the "Consumer Product Portfolio"), $30.0 million in the portfolio of
loan contracts (the "Small Loan Portfolio"), $5.3 million in the portfolio of
automobile finance contracts (the "Automobile Finance Portfolio") and $3.0
million in the portfolio of travel finance contracts (the "Travel Finance
Portfolio"). At March 31, 1996, the average net contract balance in the Consumer
Product Portfolio was $683, the average net contract balance in the Small Loan
Portfolio was $546, the average net contract balance in the Automobile Finance
Portfolio was approximately $6,700, and the average net contract balance in the
Travel Finance Portfolio was approximately $400.
As a result of completing the initial steps of its business strategy, total
revenues and interest income from October 31, 1992 to December 31, 1995 have
grown at an annual rate of 87.4% and 73.7%, respectively, while net income has
grown at an annual rate of 149.4% during the same period.
Because each of Holdings' businesses have different performance
characteristics and future prospects, Holdings created the Company as a
subsidiary of Banner to enable the businesses to pursue independent growth
strategies (the "Reorganization"). Pursuant to a Reorganization Agreement,
Holdings contributed its investments in its subsidiaries that operate the small
loan, used automobile, travel and related businesses (the "Holdings
Subsidiaries") to Banner, and Banner contributed its investments in the Holdings
Subsidiaries and in its subsidiary that holds the Consumer Product Portfolio
(collectively, the "Subsidiaries") to the Company. Banner retained the
operations of its retail business and certain other assets and liabilities.
Pursuant to a Financing Agreement, Banner granted the Company the exclusive
right to purchase consumer finance receivables originated by Banner for
merchandise sold at Banner locations, or the right to directly originate such
receivables. Pursuant to an Option Agreement, Holdings granted the Company an
option to purchase all of the outstanding capital stock of Banner for a period
of two years, beginning one year from the Reorganization, at a purchase price
equal to Banner's net book value. The Company, Banner and Holdings entered into
an Operating Agreement pursuant to which Holdings and its wholly-owned
subsidiaries agreed not to compete with the Company in connection with the
financing of consumer products, travel products, small loans, automobiles, or
insurance, until the earlier of December 31, 2002 or the date on which Holdings
ceases to own 25% of the outstanding voting stock of the Company,. For
additional information relating to the Reorganization, see "The Reorganization
and Certain Relationships and Agreements among the Company, Banner, Holdings and
Other Affiliates."
RECENT DEVELOPMENTS
In May 1996, the Company acquired the business of, and assumed the
leasehold interests to, six travel locations in greater Los Angeles. In
addition, in June 1996 the Company acquired the business of and assumed the
leasehold interests to 19 travel locations of which 14 are in greater Los
Angeles, two locations are in Chicago and one location is in each of Dallas, Las
Vegas and San Diego. Although such transactions are not material from a
financial point of view, the Company believes each new location provides the
Company with an additional center through which it can offer its financial
products and services, including travel finance, small loans, and the financing
of automobile insurance premiums, which the Company anticipates offering to its
customers beginning in July 1996.
In April 1996, the Company opened its second automobile sales facility in
greater Los Angeles.
To continue its growth, the Company intends to (i) open additional finance
centers through which it can offer small loans, airline tickets and other
financial products and services the Company may introduce in the future, (ii)
open additional used automobiles locations, (iii) introduce an expanded range of
financial products and services available to all segments of the population but
which will be tailored to meet the needs of the low
4
<PAGE> 7
income Hispanic population, (iv) expand the Company's unaffiliated retailer
installment finance business, and (v) selectively acquire existing businesses
that the Company believes will complement or expand its current offering of
financial products and services. See "-- Recent Developments."
The Company's principal executive offices are located at 5480 Ferguson
Drive, Commerce, California, 90022, and its telephone number is (213) 720-8600.
THE OFFERING
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Common Stock offered hereby.................. 1,850,000 shares
Common Stock to be outstanding
after the Offering......................... 7,000,000 shares
Use of Proceeds.............................. The net proceeds of the Offering will be used
for repayment of indebtedness, working
capital, general corporate purposes and the
expansion of the Company's business,
including possible future acquisitions. See
"Use of Proceeds."
Nasdaq National Market Symbol................ "CFAC"
</TABLE>
SUMMARY SELECTED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
TWO
MONTHS THREE MONTHS
YEARS ENDED ENDED YEARS ENDED ENDED
OCTOBER 31, DEC. 31, DECEMBER 31, MARCH 31,
------------------------------------- -------- --------------------------- -----------------
1991(1) 1992 1993 1994 1994 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- ------- ------- ------- ------- -------
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STATEMENTS OF INCOME DATA:
Revenues:
Consumer Product Portfolio
interest income......... $4,482 $ 8,145 $ 9,010 $11,444 $2,057 $ 9,420 $11,787 $12,508 $ 2,955 $ 3,205
Small Loan Portfolio
interest income......... -- -- 134 672 439 188 1,057 5,095 1,009 2,093
Automobile sales.......... -- -- -- -- -- -- -- 4,417 -- 2,038
Transaction fees on
contracts purchased from
related party........... 392 747 830 844 150 829 857 916 229 227
Other income(2)........... 652 1,253 1,457 1,756 416 1,445 1,868 3,653 654 1,722
------ ------- ------- ------- ------ ------- ------- ------- ------- -------
Total Revenues...... 5,526.. 10,145 11,431 14,716 3,062 11,882 15,569 26,589 4,847 9,285
------ ------- ------- ------- ------ ------- ------- ------- ------- -------
Costs and Expenses:
Operating expenses........ 1,980 3,986 4,519 5,009 1,025 4,461 5,170 8,150 1,522 2,504
Cost of automobiles
sold.................... -- -- -- -- -- -- -- 3,071 -- 1,355
Provision for credit
losses.................. 878 2,654 3,264 3,002 1,617 3,447 3,923 5,859 1,106 2,347
Interest expense.......... 1,776 2,306 2,279 2,523 617 2,235 2,801 4,278 1,075 1,241
------ ------- ------- ------- ------ ------- ------- ------- ------- -------
Income before taxes......... 892 1,199 1,369 4,182 (197) 1,739 3,675 5,231 1,144 1,838
Income tax expense.......... 371 503 572 1,694 (74) 727 1,493 2,112 465 735
------ ------- ------- ------- ------ ------- ------- ------- ------- -------
Net income.................. $ 521 $ 696 $ 797 $ 2,488 $ (123) $ 1,012 $ 2,182 $ 3,119 $ 679 $ 1,103
====== ======= ======= ======= ====== ======= ======= ======= ======= =======
Pro forma net income per
share(3).................. $ 0.61 $ 0.21
======= =======
Supplementary net income per
share(4).................. $ 0.58 $ 0.19
======= =======
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AT MARCH 31, 1996
---------------------------
ACTUAL AS ADJUSTED(5)
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BALANCE SHEET DATA:
Cash.................................................................................... $ 133 $ 500
Installment Credit Portfolio............................................................ 59,896 59,896
Small Loan Portfolio.................................................................... 30,002 30,002
Total assets............................................................................ 97,331 97,698
Total debt.............................................................................. 61,329 41,483
Stockholder's equity.................................................................... 33,532 53,745
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(1) Reflects operations for the seven months ended October 31, 1991, which was
the first fiscal period of the Company's operations subsequent to the 1991
Acquisition.
(2) Includes administrative fees charged on certain small loan contracts and,
beginning in 1995, interest earned on the Automobile Finance Portfolio and
Travel Finance Portfolio and net revenues from the sales of airline tickets.
The Consumer Product Portfolio, Automobile Finance Portfolio and Travel
Finance Portfolio are hereinafter collectively referred to as the
"Installment Credit Portfolio."
(3) Pro forma net income per share is based on 5,150,000 shares of Common Stock
issued by the Company pursuant to the Reorganization that are assumed to be
outstanding as of January 1, 1995.
(4) Supplementary net income per share is based on 5,150,000 shares of Common
Stock issued by the Company pursuant to the Reorganization and 1,850,000
shares of Common Stock to be sold by the Company pursuant to the Offering as
if all such shares were outstanding as of January 1, 1995, and also gives
effect to a reduction in interest expense resulting from the reduction of
indebtedness upon application of the estimated net proceeds of the Offering
as if it had occurred on January 1, 1995.
(5) Adjusted to reflect the sale of Common Stock offered hereby, an assumed
capital contribution by Banner of $367,000 pursuant to the Reorganization,
and the application of the estimated net proceeds therefrom as set forth
under "Use of Proceeds."
CONSUMER PRODUCT PORTFOLIO
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<CAPTION>
YEARS ENDED YEARS ENDED THREE MONTHS
OCTOBER 31, DECEMBER 31, ENDED MARCH 31,
----------------- --------------------------- -----------------
1992 1993 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
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OPERATING DATA:
Gross receivable
(at end of period)............ $54,038 $57,250 $60,590 $67,514 $67,811 $63,466 $63,069
Deferred interest
(at end of period)............ 6,354 7,028 7,657 7,603 7,796 6,937 7,203
------- ------- ------- ------- ------- ------- -------
Net receivable (at end of
period)....................... $47,684 $50,222 $52,933 $59,911 $60,015 $56,529 $55,866
======= ======= ======= ======= ======= ======= =======
Average net receivable(1)....... $46,690 $51,907 $52,456 $53,656 $57,276 $58,214 $57,810
Net provision for credit
losses........................ 2,654 3,198 3,340 3,332 3,852 826 1,191
Provision for credit losses as a
percentage of average net
receivable.................... 5.7% 6.2% 6.4% 6.2% 6.7% 5.7% 8.2%
Net write-offs.................. $ 1,688 $ 2,834 $ 2,897 $ 2,949 $ 3,310 $ 679 $ 930
Net write-offs as a percentage
of average net receivable..... 3.6% 5.5% 5.5% 5.5% 5.8% 4.7% 6.4%
Accounts with payments 31 days
or more past due as a
percentage of end of period
gross receivable.............. 5.4% 5.1% 4.8% 7.2% 6.5% 6.1% 6.1%
Average interest rate on average
net receivable................ 17.4% 17.4% 18.0% 22.0% 21.8% 20.3% 22.2%
Net Interest Spread(2).......... 10.4% 11.1% 11.8% 15.1% 13.5% 12.1% 14.2%
</TABLE>
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SMALL LOAN PORTFOLIO
<TABLE>
<CAPTION>
YEAR YEARS ENDED THREE MONTHS
ENDED DECEMBER 31, ENDED MARCH 31,
OCTOBER 31, -------------------------- -----------------
1993(4) 1993 1994 1995 1995 1996
----------- ------ ------- ------- ------- -------
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Gross receivable (at end of period)..... $ 705 $4,314 $16,735 $37,868 $18,267 $35,678
Deferred interest (at end of period).... 26 241 1,809 4,187 1,772 3,491
----------- ------ ------- ------- ------- -------
Net receivable (at end of period)....... $ 679 $4,073 $14,926 $33,681 $16,495 $32,187
======== ====== ======= ======= ======= =======
Average net receivable(1)............... $ 850 $1,131 $ 5,662 $20,219 $15,764 $33,335
Net provision for credit losses......... 66 107 591 1,547 280 899
Provision for credit losses as a
percentage of
average net receivable................ 8.5% 9.5% 10.4% 7.7% 7.1% 10.8%
Net write-offs.......................... -- -- 155 896 86 487
Net write-offs as a percentage of
average net
receivable............................ 0.0% 0.0% 2.7% 4.4% 2.2% 5.8%
Accounts with payments 31 days or more
past due as a percentage of end of
period gross receivable(3)............ 5.2% 1.0% 1.1% 3.0% 2.0% 3.8%
Average interest rate on average net
receivable............................ 15.8% 16.6% 18.7% 25.2% 25.6% 25.1%
Net Interest Spread(2).................. 15.8% 10.6% 11.7% 17.2% 16.8% 17.1%
</TABLE>
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(1) Average net receivable is based upon the net receivable on the last day of
each month for the respective period.
(2) Reflects the difference between the average interest rate on average net
receivable and the average interest rate on interest bearing liabilities
(the "Net Interest Spread").
(3) The Company believes that as the Small Loan Portfolio seasons the number of
accounts with payments 31 days or more past due as a percentage of end of
period gross receivable will conform to the levels the Company has
experienced in the Consumer Product Portfolio.
(4) The Company commenced its small loan business in December 1992.
AUTOMOBILE FINANCE PORTFOLIO
The Company began offering Company-financed sales of used automobiles in
mid-1995. At December 31, 1995 and March 31, 1996, respectively, the gross
receivable of the Automobile Finance Portfolio was $5.5 million and $7.7
million, the net receivable of the portfolio was $4.2 million and $5.8 million,
and the allowance for credit losses was $410,000 and $544,000, representing 9.8%
and 9.3% of the end of period net receivable. No write-offs were charged against
the allowance for credit losses in the year ended December 31, 1995. Write-offs
of $60,000 were charged against the allowance for credit losses in the three
months ended March 31, 1996. At December 31, 1995 and March 31, 1996,
respectively, the dollar amount of accounts 31 days or more past due in the
Automobile Finance Portfolio was $117,000 and $199,000 or 2.1% and 2.6% as a
percentage of the end of period gross receivable. Due to the size and lack of
seasoning of this portfolio, there can be no assurance that the Company's
experience to date with the Automobile Finance Portfolio is indicative of future
results of this portfolio.
TRAVEL FINANCE PORTFOLIO
The Company also began offering Company-financed sales of airline tickets
in mid-1995. At December 31, 1995 and March 31, 1996, respectively, the gross
receivable of the Travel Finance Portfolio was $3.0 million and $3.4 million,
the net receivable of the portfolio was $2.7 million and $3.1 million, and the
allowance for credit losses was $50,000 and $70,000, representing 1.8% and 2.3%
of the end of period net
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receivable. No write-offs were charged against the allowance for credit losses
in the year ended December 31, 1995. Write-offs of $43,000 were charged against
the allowance for credit losses in the three months ended March 31, 1996. The
Company expects that write-offs in the Travel Finance Portfolio will approximate
those experienced by the Company in the Consumer Product Portfolio. At December
31, 1995 and March 31, 1996, respectively, the dollar amount of accounts 31 days
or more past due in the Travel Finance Portfolio was $87,000 and $101,000, or
2.9% and 3.0% as a percentage of the end of period gross receivable. Due to the
size and lack of seasoning of this portfolio, there can be no assurance that the
Company's experience to date with its Travel Finance Portfolio is indicative of
future results of this portfolio.
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RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective purchasers should carefully consider the following
risk factors, among others, in evaluating an investment in the Common Stock
offered hereby.
CREDIT RISK ASSOCIATED WITH CUSTOMERS; LACK OF COLLATERAL
The Company's customers are typically between the ages of 21 and 45, earn
less than $25,000 per year, have little or no savings and limited or short-term
employment histories. In addition, the Company's customers typically have no
prior credit histories and are unable to secure credit from traditional lending
sources. The Company makes its credit decisions primarily on its assessment of a
customer's ability to repay the obligation. In making a credit decision, in
addition to the size of the obligation, the Company generally considers a
customer's income level, type and length of employment, stability of residence,
personal references and prior credit history with the Company. As a result, the
Company is more susceptible to the risk that its customers will not satisfy
their repayment obligations than are less specialized consumer finance companies
or consumer finance companies that have more stringent underwriting criteria.
Because the Company relies on the creditworthiness of its customers for
repayment and does not rely on collateral securing the debt (other than in the
Automobile Finance Portfolio), the Company experiences actual rates of losses
higher than lenders who have collateral which they can repossess in the event of
a borrower's default. For information concerning the Company's credit quality
experience, see "Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Segment Data -- Credit Quality."
GENERAL ECONOMIC RISK
The risks associated with the Company's business become more significant in
an economic slowdown or recession. During periods of economic slowdown or
recession, the Company has experienced and may again experience a decreased
demand for its financial products and services and an increase in rates of
delinquencies and the frequency and severity of losses. The Company's actual
rates of delinquencies and frequency and severity of losses have been in the
past and may be in the future higher under adverse economic conditions than
those experienced in the consumer finance industry generally. Any sustained
period of economic slowdown or recession could materially adversely affect the
Company's financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Segment Data -- Financial Trends," and "-- Credit Quality."
DEPENDENCE ON CALIFORNIA MARKET
Substantially all of the Company's facilities are located, and
substantially all of the Company's revenues are generated in California,
primarily in greater Los Angeles. Therefore, the Company's performance depends
upon economic conditions in California and may be further adversely affected by
social factors or natural disasters in California. California has experienced
adverse economic conditions over the last several years. A further decline in
the California economy could have a material adverse effect on the Company's
results of operations and financial condition.
CONCENTRATION OF CONSUMER PRODUCT PORTFOLIO WITH BANNER'S CUSTOMERS
Substantially all of the Consumer Product Portfolio consists of consumer
finance receivables generated from products sold by Banner. The Consumer Product
Portfolio accounted for 57.5% of the Company's gross receivable portfolio as of
March 31, 1996. The performance of the Consumer Product Portfolio therefore
depends substantially upon the success of Banner's stores. Although the Company
has begun to expand its installment credit business to other retailers as part
of its business strategy, Banner's customers will continue to account for a
large majority of the Company's Consumer Product Portfolio for the foreseeable
future. There can be no assurance that the Company will be able to successfully
expand its installment credit finance business to other retailers.
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INTEREST RATE RISK
The Net Interest Spread partially determines the Company's profitability.
Because the Company pays a floating interest rate on borrowings under its Lines
of Credit and has elected not to hedge its interest rate risk, increases in such
rates have at times decreased, and in the future may decrease, the Company's Net
Interest Spread and have a material adverse effect on the Company's results of
operations and financial condition. The interest rate the Company is allowed to
charge its customers on its small loans is limited under California law. The
Company presently charges the maximum interest rate permitted in California.
There is no corresponding interest rate limitation on installment credit sales.
Increases in the interest rate the Company charges its customers could reduce
demand for Banner's products and the Company's financial products and services
which, in turn, could decrease the Company's net income. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation" and
"Business -- Regulation."
NEED FOR ADDITIONAL FINANCING
The Company requires substantial capital to finance its business.
Consequently, the Company's ability to maintain its current level of operations
and to expand its operations will be affected by the availability of financing
and the terms thereof. Principally, the Company funds its lending activities and
operations through a $60 million line of credit with Bank of America National
Trust and Savings Association (the "Bank of America Line of Credit") and a $30
million line of credit with Wells Fargo Bank, National Association (the "Wells
Fargo Line of Credit" and, together with the Bank of America Line of Credit, the
"Lines of Credit"). The Bank of America Line of Credit may be used only for the
Company's consumer product finance business. The amount of credit available at
any one time under the Bank of America Line of Credit is limited to 75% of
eligible contracts in the Company's Consumer Product Portfolio. The total amount
available to the Company under the Bank of America Line of Credit as of March
31, 1996, was $38.5 million, of which the Company had borrowed $38.5 million.
The Bank of America Line of Credit was amended and restated as of June 24, 1996
and expires on August 30, 1996. The Wells Fargo Line of Credit may be used only
for the Company's travel finance, auto finance and small loan businesses. The
amount of credit available at any one time under the Wells Fargo Line of Credit
is limited to 70% of eligible contracts in the Small Loan, Automobile Finance
and Travel Finance Portfolios. The total amount available to the Company under
the Wells Fargo Line of Credit as of March 31, 1996, was $27.9 million, of which
the Company had borrowed $22.0 million. The Wells Fargo Line of Credit expires
on December 31, 1996. The Company is currently in discussions with Bank of
America and Wells Fargo with respect to the renewal of such Lines of Credit. The
Company believes it will be able to renew both Lines of Credit. However, there
can be no assurance that the Company will be able to renew such Lines of Credit,
that the Company will have access to additional financing sources necessary to
sustain its operations and fund its growth, or that the Company will be able to
secure financing on favorable terms. See "Use of Proceeds."
The Lines of Credit contain restrictive covenants that require the Company
to maintain, among other things, certain financial ratios and amounts. The
Company must maintain a specified tangible net worth, specific cash flow to
interest coverage ratios and specific debt to tangible net worth ratios, as such
terms are defined in the Lines of Credit. The Company must maintain other ratios
related to the performance of the Company's Combined Receivable Portfolio. At
March 31, 1996, the Company was in compliance with such restrictive covenants in
the Lines of Credit.
The Company may securitize all or portions of its Consumer Product
Portfolio, Small Loan Portfolio, Travel Finance Portfolio or Automobile Finance
Portfolio once it generates sufficient volume of such receivables.
Securitization would increase the Company's liquidity and reduce its reliance on
its Lines of Credit. However, the Company has never consummated a securitization
transaction, and the securitization markets for many of the Company's
receivables are limited. Accordingly, there can be no assurance that the Company
will successfully implement a securitization program.
The net proceeds of the Offering are expected to meet the Company's
liquidity requirements for more than 12 months if the Company were to maintain
its operations at current levels. However, the Company will need to arrange for
additional bank borrowings or additional debt or equity financing as it
continues to grow. The Company may not be able to obtain additional financing on
acceptable terms, and any such unavailability
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could have a material adverse effect on the Company's results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations -- Liquidity and Capital Resources."
ABILITY OF THE COMPANY TO EXECUTE ITS BUSINESS STRATEGY
The financial performance of the Company will depend, in part, on the
Company's ability (i) to open and/or acquire additional locations on favorable
terms, (ii) to generate satisfactory performance or enhance performance at such
locations, (iii) to integrate new locations into the Company's operations, and
(iv) to enter into arrangements with additional third-party retailers. However,
the Company may compete for expansion and acquisition opportunities with
companies that have significantly greater financial and other resources than the
Company. There can be no assurance that the Company will be able to locate
suitable new locations or acquisition candidates, or that any operations that
the Company opens or acquires will be effectively and profitably integrated into
the Company's existing operations. New location openings and acquisitions may
negatively impact the Company's operating results, particularly during the
periods immediately following an opening or acquisition. In addition, there can
be no assurance that the Company will be able to profitably implement its
business strategy in geographic areas it does not currently serve.
The Company's financial performance also depends, in part, on the Company's
ability to manage its growing Small Loan Portfolio, Automobile Finance Portfolio
and Travel Finance Portfolio, and the Company's ability to successfully
introduce additional financial products and services. There can be no assurance
that additional financial products and services will be introduced or, if
introduced, that such financial products and services will be successful. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources."
COMPETITION
The installment finance credit business is highly competitive. The Company,
through its relationship with Banner and third-party retailers, competes with
department stores, discount stores and other retail outlets which also provide
credit to low income consumers. The largest national and regional competitors
have significantly greater resources than the Company, which competes only
regionally through 11 locations in greater Los Angeles and one location in San
Francisco. Additionally, new competitors with significant expertise and
resources may enter and compete in the Company's markets either through
expansion of operations or acquisitions.
The small loan consumer finance industry is a highly fragmented segment of
the consumer finance industry. There are numerous small-loan consumer finance
companies operating in the United States. Many of these companies have
substantially greater resources than the Company, and the entry of any such
company within the Company's markets could have a material adverse effect on the
Company's business strategy, results of operations, and financial condition.
IMPACT OF GOVERNMENT REGULATION
The operations of the Company are regulated by federal, state and local
government authorities and are subject to various laws and judicial and
administrative decisions imposing various requirements and restrictions,
including, among other things, regulating credit granting activities,
establishing maximum interest rates, and charges, requiring disclosures to
customers, governing secured transactions and setting collection, repossession
and claims handling procedures and other trade practices. Although the Company
believes that it is in compliance in all material respects with applicable
local, state and federal laws, rules and regulations, there can be no assurance
that more restrictive laws, rules and regulations will not be adopted in the
future which may make compliance more difficult or expensive, restrict the
Company's ability to purchase or finance installment sales or small loans,
further limit or restrict the amount of interest and other charges imposed in
installment sales or small loans originated by third-party retailers or the
Company, or otherwise materially adversely affect the business or prospects of
the Company. See "Business -- Government Regulation."
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SEASONAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company experiences the highest demand for its financial products and
services between October and December, and experiences the lowest demand for its
financial products and services between January and March. These significant
seasonal fluctuations in its business directly impact the Company's operating
results and cash needs. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quarterly Information and Seasonality."
CONCENTRATION OF VOTING CONTROL
Banner will beneficially own or otherwise control an aggregate of
approximately 73.6% of the outstanding Common Stock of the Company after
completion of the Offering (approximately 70.8% if the Underwriters'
over-allotment option is exercised in full). Consequently, Banner will be able
to elect the entire Board of Directors, adopt amendments to the Company's
Certificate of Incorporation or effect a merger, sale of assets, or other
fundamental corporate transaction without the approval of the Company's other
stockholders. Banner will be able to control the direction and future operations
of the Company, including decisions regarding the issuance of additional shares
of Common Stock and other securities. As long as Banner is a majority
stockholder of the Company, it will be impossible for third parties to obtain
control of the Company through purchases of Common Stock not beneficially owned
or otherwise controlled by Banner. See "-- Relationships with Holdings, Banner
and Affiliates; Potential Conflicts of Interest," "The Reorganization and
Certain Relationships and Agreements among the Company, Banner, Holdings and
Other Affiliates," "Management," "Description of Capital Stock," "Principal
Shareholders" and "Shares Eligible for Future Sale."
RELATIONSHIPS WITH HOLDINGS, BANNER AND AFFILIATES; POTENTIAL CONFLICTS OF
INTEREST
Gary M. Cypres, the Company's Chairman of the Board, Chief Executive
Officer and President, is the Chairman of the Board, Chief Executive Officer,
Chief Financial Officer and President of Holdings and Banner. West Coast Private
Equity Partners, L.P. ("West Coast"), of which Mr. Cypres is the managing
general partner, controls Holdings. Mr. Cypres controls the Company, through
West Coast, Holdings and Banner. Consequently, West Coast and Mr. Cypres may
have conflicts of interest with respect to transactions concerning the Company
and its affiliates. Additionally, West Coast, through Holdings, controls two
companies other than the Company, Banner and Central Rents Holdings, Inc., all
of which may have divergent interests. Banner owns and operates six installment
credit stores in greater Los Angeles and one installment credit store in San
Francisco. Central Rents Holdings, Inc., and its wholly-owned subsidiary,
Central Rents, Inc. ("Central Rents"), owns and operates 167 rental-purchase
stores in 20 states which rent a broad range of consumer products, including
electronics, appliances and furniture. Central Rents operates 23 rental-purchase
stores in Southern California and 21 rental-purchase stores in Northern
California.
The Company, Banner and Holdings have entered into certain agreements
setting forth the ongoing relationships among them. None of these agreements is
the result of arms-length negotiations. Therefore, there can be no assurance
that any of these agreements has been effected on terms comparable to those that
would have resulted from negotiations among unaffiliated parties. Furthermore,
the Company, Banner and Holdings and their respective subsidiaries may enter
into additional or modified agreements, arrangements and transactions after the
consummation of the Offering. Any such future agreements, arrangements or
transactions will be determined through negotiations between the Company, Banner
and Holdings or their respective subsidiaries, as the case may be. See
"-- Concentration of Voting Control."
Prior to the Offering, Mr. Cypres rendered services to the Company through
a consulting agreement between Holdings and G.M. Cypres & Co., Inc., a Delaware
corporation wholly-owned by Mr. Cypres ("G.M. Cypres & Co."). Concurrent with
the Offering, Mr. Cypres will enter into a five year employment agreement with
the Company pursuant to which Mr. Cypres will act as Chairman of the Board,
Chief Executive Officer and President of the Company. In such capacities, Mr.
Cypres will spend that portion of his business time as is required to oversee
the operations of the Company and to formulate and direct the implementation of
the Company's business strategies. Mr. Cypres will continue to spend a portion
of his business time as the
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managing general partner of West Coast, as Chairman of the Board, Chief
Executive Officer, Chief Financial Officer and President of Holdings, as
Chairman of the Board, Chief Executive Officer, Chief Financial Officer and
President of Banner, and as Chairman of the Board, Chief Executive Officer and
President of Central Rents. See "-- Concentration of Voting Control," "The
Reorganization and Certain Relationships and Agreements among the Company,
Banner, Holdings and Other Affiliates," "Shares Eligible for Future Sale" and
"Management."
DEPENDENCE UPON KEY PERSONNEL
The Company's success depends substantially on certain members of its
senior management, in particular Mr. Cypres, the Company's Chairman of the
Board, Chief Executive Officer and President. The Company's business and
financial condition could be materially adversely affected by the loss of the
services of any such individuals. The Company does not maintain key man life
insurance. See "Management" and "The Reorganization and Certain Relationships
and Agreements among the Company, Banner, Holdings and Other Affiliates."
SHARES AVAILABLE FOR FUTURE SALE
The 1,850,000 shares of Common Stock sold in the Offering will be freely
tradeable by persons other than "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), without restriction under the Securities Act. Upon
consummation of the Offering, approximately 73.6% of the outstanding shares of
Common Stock will be beneficially owned or otherwise controlled by Banner, and
all of such shares are "restricted securities" within the meaning of Rules 144
and 144A under the Securities Act. Banner will own 5,150,000 shares of Common
Stock upon completion of the Offering. Banner has agreed not to sell any shares
owned by it for 180 days following completion of the Offering without the prior
written consent of the Underwriters. Upon the expiration of the aforementioned
180-day period, Banner may be able to sell all or a portion of its shares
without registration under the Securities Act pursuant to Rules 144 and 144A
promulgated thereunder. Sale of substantial numbers of such shares in the public
market, or the perception that such sales could occur, could adversely affect
the market price of the Common Stock. See "Shares Eligible for Future Sale" and
"Underwriting."
IMMEDIATE DILUTION
Based upon an assumed initial public offering price of $12.00 per share,
purchasers of the Common Stock offered hereby will experience immediate dilution
in the net tangible book value of the Common Stock in the amount of $4.52 per
share. See "Dilution."
ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON STOCK
There has been no public market for the Common Stock prior to the Offering,
and there can be no assurance that an active trading market will develop or be
sustained or that the Common Stock can be resold at or above the initial public
offering price. The initial public offering price of the Common Stock will be
determined by agreement among the Company and the Underwriters and may not be
indicative of the market price for the Common Stock after the Offering. General
market conditions, including changes in interest rates, could substantially
affect the market value of the Common Stock. Moreover, numerous other factors,
such as government regulatory action, could have a significant impact on the
future market price of the Common Stock. See "Underwriting."
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THE REORGANIZATION AND CERTAIN RELATIONSHIPS AND
AGREEMENTS AMONG THE COMPANY,
BANNER, HOLDINGS AND OTHER AFFILIATES
INTRODUCTION; REORGANIZATION
The Company was formed on April 11, 1996. The Company, Banner and Holdings
have entered into an agreement (the "Reorganization Agreement") pursuant to
which on June 24, 1996, Holdings contributed to Banner its investments in its
subsidiaries that operate the small loan, automobile sales, travel, and related
businesses (the "Holdings Subsidiaries"), and Banner contributed to the Company
its investments in the Holdings Subsidiaries and in its subsidiary that holds
the Consumer Product Portfolio (collectively, the "Subsidiaries") and cash in
such amount so as to leave the Company with $500,000 on hand upon the
Reorganization. Pursuant to the Reorganization Agreement, the intercompany
accounts between the Company, Banner and Holdings have been forgiven, except
with respect to income taxes. As a result, the Company had $500,000 of cash on
hand upon the Reorganization.
In connection with the Reorganization and pursuant to the Reorganization
Agreement, the Company, Banner and Holdings entered into various agreements for
the purpose of defining the ongoing relationships among them. Because Holdings
controls the Company and Banner (see "-- Certain Relationships"), these
agreements were not the result of arm's-length negotiations. The Company
believes, however, that these agreements are at least as favorable to the
Company as those that could have been obtained from unaffiliated third parties.
The following is a summary of the material terms of the agreements, and it and
the limited summary of the Reorganization Agreement set forth above are
qualified in their entirety by reference to the complete agreements which have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part. See Notes 1 and 11 to the Company's Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
FINANCING AGREEMENT
The Company, Banner and Holdings have entered into an agreement (the
"Financing Agreement") pursuant to which Banner granted the Company the
exclusive right, at the Company's option, (i) to purchase consumer finance
receivables originated by Banner for sales of merchandise at Banner stores in
operation on the date of the Financing Agreement and for all stores which Banner
may determine to open in the future during the term of the Financing Agreement
(and any extension thereof), or (ii) to provide financing directly to Banner's
customers at all of such locations. The Company is not obligated to provide
financing to any particular Banner customer, or to offer financing at any Banner
location or locations.
The Financing Agreement has a term of 15 years commencing on the date of
the Reorganization. The Company may terminate the Financing Agreement at any
time upon one year's prior written notice to Banner.
During the term of the Financing Agreement, as long as Banner originates
its consumer finance receivables, the Company will have the right to purchase
consumer finance receivables at face value less a 1.6% transaction fee, or, if
the Company originates such receivables, Banner will be obligated to pay the
Company a fee equal to 1.6% of the face value of each such receivable.
Recognizing the value to Banner of the Company continuing to provide certain
financial products and services, including check cashing, travel and small
loans, in Banner's retail locations, the space the Company occupies in Banner's
locations is provided by Banner at no cost or charge to the Company.
OPTION AGREEMENT
The Company, Banner and Holdings have entered into an agreement (the
"Option Agreement") pursuant to which Holdings granted the Company an option to
purchase all of the outstanding capital stock of Banner (the "Option") from
Holdings at any time during the period commencing on the first anniversary of
the date of the Reorganization and ending on the third anniversary thereof (the
"Option Termination Date"). The exercise price of the Option will be equal to
the net book value of Banner as reflected on Banner's balance sheet for the
month ended immediately preceding the exercise of the Option; such balance sheet
shall have been prepared in accordance with generally accepted accounting
principles on a basis consistent with prior periods. If the Company exercises
the Option, the exercise price is payable in cash or in shares of Common
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Stock valued at the average last sale price of the Company's Common Stock during
the ten trading-day period preceding the date on which the Company delivers to
Holdings its written notice of exercise. Until the Option Termination Date,
Holdings may not, without the Company's prior written consent, sell, offer or
agree to sell, grant any option for the sale of, or otherwise dispose of any of
the capital stock of Banner (or any securities convertible into, exercisable for
or exchangeable for capital stock of Banner) nor will Banner sell substantially
all of its assets.
OPERATING AGREEMENT
The Company, Banner and Holdings have entered into an agreement (the
"Operating Agreement") setting forth certain rights and obligations of the
parties following the Reorganization. The Operating Agreement covers the
following matters:
Allocation of Business Opportunities. Due to the potential conflicts of
interest resulting from the relationships among the Company, Banner and Holdings
(see "-- Certain Relationships" below), the Operating Agreement provides that
Holdings and its subsidiaries (other than the Company and its subsidiaries) will
not, without the prior written consent of the Company, directly or indirectly
engage in or enter into any business competing with the Company and involving
the financing of consumer products, travel products, small loans, automobiles or
insurance (the "Restricted Businesses"). If Holdings shall acquire a company
engaged in a Restricted Business or shall otherwise directly or indirectly
engage in a Restricted Business, Holdings shall be obligated to sell, at the
election of the Company, such Restricted Business to the Company at a purchase
price equal to the fair market value of such Restricted Business, as determined
through an independent appraisal process. The foregoing restriction shall
terminate on December 31, 2002, or, if earlier, on the date on which Holdings
ceases to own, directly or indirectly, at least 25% of the outstanding voting
stock of the Company.
Management and Other Services. The Operating Agreement provides that
Banner, Holdings or their affiliates are obligated to provide to the Company,
and the Company is obligated to utilize, certain services, including accounting,
management information systems, employee benefits, legal, insurance, purchasing
and advertising. Except for management information systems, these arrangements
will continue until terminated by the Company, Banner, Holdings or such
affiliate upon one-year's prior written notice. Termination may be made on a
service-by-service basis or in its entirety. For the foregoing and other
services provided by Banner, Holdings or such affiliated company, and to the
extent that such services directly relate to the business of the Company, the
Company is obligated to pay Banner, Holdings or such affiliate its actual cost
of providing the same. If such services involve an allocation of expenses, such
allocation shall be determined on the basis of its percentage utilization of
such service or management's best estimate thereof. With respect to management
information systems operations and expenses, Banner and the Company agree to
allocate 50% of such expenses each to Banner and the Company for a period of
five years, subject to adjustment from time to time to reflect changing costs
and usage.
Employee Benefits. The Operating Agreement provides that the Company will
assume all liabilities of Banner, Holdings and the Subsidiaries under existing
employee welfare benefit and profit sharing plans with respect to the employees
of Banner, Holdings and the Subsidiaries who have become employees of the
Company. The Operating Agreement also provides that the employment by the
Company of individuals who were employees of Banner, Holdings and the
Subsidiaries prior to the Reorganization will not be deemed a severance of
employment from Banner, Holdings and the Subsidiaries for purposes of any
policy, plan, program or agreement that provides for the payment of severance,
salary continuation or similar benefits.
TAX SHARING AGREEMENT
The Company, Holdings and Banner have entered into an agreement (the "Tax
Sharing Agreement") providing for (i) the payment of federal, state and other
income tax remittances or refunds for periods during which the Company and
Holdings were included in the same consolidated group for federal income tax
purposes, (ii) the allocation of responsibility for the filing of such tax
returns, (iii) the conduct of tax audits and the handling of tax controversies
and (iv) various related matters. For periods during which the Company was
included in Holdings' consolidated federal income tax returns, the Company will
be required to pay Holdings its allocable portion of the consolidated federal,
state and other income tax liabilities and will be
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entitled to receive refunds determined as if the Company and its subsidiaries
had filed separate income tax returns. With respect to Holdings' liability for
payment of taxes for all periods during which the Company was so included in
Holdings' consolidated federal income tax returns, the Company will indemnify
Holdings for all federal, state and other income tax liabilities for such
periods. The date of the consummation of the Offering will be the last day on
which the Company is required to be included in Holdings' consolidated federal
income tax returns.
INDEMNIFICATION AGREEMENTS
The Company, Holdings and Banner have entered into an indemnification
agreement (the "Indemnification Agreement") under which the Company will
indemnify and hold harmless Holdings and Banner with respect to any and all
claims, losses, damages, liabilities, costs and expenses (except when arising
from Holdings' or Banner's intentional misconduct or gross negligence or to the
extent any liability arises from a breach by Banner of its fiduciary duty to
other stockholders of the Company) that arise from or are based on the
operations of the business of the Company and its subsidiaries after the date of
the Reorganization. The Company will also indemnify and hold harmless Holdings
and Banner with respect to any and all claims, losses, damages, liabilities,
costs and expenses that arise from or are based on guarantees or undertakings
made by Holdings or Banner to third parties in respect of liabilities or
obligations of the Company, whether or not such obligations arose before or
after the Reorganization. Holdings and Banner will indemnify and hold harmless
the Company with respect to any and all claims, losses, damages, liabilities,
costs and expenses that arise from or are based on the operations of Holdings or
Banner, other than the business of the Company and its subsidiaries, before or
after the date of the Reorganization. The rights of any party under the
Indemnification Agreement are not assignable or transferable without the prior
written consent of the other parties.
The Company and Holdings have also entered into an indemnification
agreement pursuant to which the Company will indemnify and hold harmless
Holdings with respect to any and all claims, losses damages, liabilities, costs
and expenses, including liabilities arising under the Securities Act, that are
incurred by Holdings as a result of the operation of the indemnification or
contribution provisions contained in the underwriting agreement among the
Company, Holdings and the Underwriters. See "Underwriting." The Company has been
informed that, in the opinion of the Securities and Exchange Commission, the
indemnification of officers, directors or persons controlling the Company for
liabilities arising under the Securities Act is against public policy.
OTHER TRANSACTIONS WITH AFFILIATES
Additional or modified agreements, arrangements and transactions may be
entered into by the Company, Banner, Holdings or their respective subsidiaries
after the completion of the Offering. Any such future agreements, arrangements
and transactions will be determined through negotiations between the Company,
Banner, Holdings or their respective subsidiaries, as the case may be. Since the
Company will be controlled by Banner following the Offering, such negotiations
will not be at arm's-length.
CERTAIN RELATIONSHIPS
After completion of the Offering, Banner will beneficially own or otherwise
control an aggregate of approximately 73.6% of the outstanding Common Stock of
the Company (approximately 70.8% if the Underwriters' over-allotment option is
exercised in full). As such, Banner will be able to elect the entire Board of
Directors, adopt amendments to the Company's Certificate of Incorporation, or
effect a merger, sale of assets, or other fundamental corporate transaction
without the approval of the Company's other stockholders. Holdings will be able
to control the direction and future operations of the Company, including
decisions regarding the issuance of additional shares of Common Stock and other
securities. As long as Banner is a majority stockholder of the Company, it will
be impossible for third parties to obtain control of the Company through
purchases of Common Stock not beneficially owned or otherwise controlled by
Banner.
16
<PAGE> 19
Mr. Cypres, the Company's Chairman of the Board, Chief Executive Officer
and President, is the Chairman of the Board, Chief Executive Officer, Chief
Financial Officer and President of Holdings and Banner. West Coast, of which Mr.
Cypres is the managing general partner, controls Holdings. Mr. Cypres controls
the Company through West Coast, Holdings and Banner. West Coast and Mr. Cypres
may have conflicts of interest with respect to transactions concerning the
Company and its affiliates. Additionally, West Coast, through Holdings, controls
two companies other than the Company, Banner and Central Rents, all of which may
have divergent interests. Banner owns and operates six installment credit stores
in greater Los Angeles and one installment credit store in San Francisco.
Central Rents owns and operates 167 rental-purchase stores in 20 states which
rent a broad range of consumer products, including electronics, appliances and
furniture. Central Rents operates 23 rental-purchase stores in Southern
California and 21 rental-purchase stores in Northern California.
Prior to the Offering, Mr. Cypres rendered services to the Company through
an agreement between Holdings and G.M. Cypres & Co. Concurrent with the
Offering, Mr. Cypres will enter into a five year employment agreement with the
Company pursuant to which Mr. Cypres will act as Chairman of the Board, Chief
Executive Officer and President of the Company. In such capacities, Mr. Cypres
will spend that portion of his business time as is required to oversee the
operations of the Company and to formulate and direct the implementation of the
Company's business strategies. Mr. Cypres will continue to spend a portion of
his business time as the managing general partner of West Coast, as Chairman of
the Board, Chief Executive Officer, Chief Financial Officer and President of
Holdings, as Chairman of the Board, Chief Executive Officer, Chief Financial
Officer and President of Banner, and as Chairman of the Board, Chief Executive
Officer and President of Central Rents. See "Risk Factors -- Relationships with
Holdings, Banner and Affiliates; Potential Conflicts of Interest," "Management,"
"Description of Capital Stock," "Principal Shareholders" and "Shares Eligible
for Future Sale."
17
<PAGE> 20
RECENT DEVELOPMENTS
In May 1996, the Company acquired the business of and assumed the leasehold
interests to six travel locations in greater Los Angeles. In addition, in June
1996, the Company acquired the business of and assumed the leasehold interests
to 19 travel locations with 14 locations in greater Los Angeles, two locations
in Chicago and one location each in Dallas, Las Vegas and San Diego. Although
such transactions are not material from a financial point of view, the Company
believes each new location will provide the Company with an additional center
through which it can offer its financial products and services, including travel
finance, small loans and the financing of automobile insurance premiums, which
the Company anticipates offering to its customers beginning in July 1996.
In April 1996, the Company opened its second used automobile sales facility
in greater Los Angeles.
USE OF PROCEEDS
Assuming an initial public offering price of $12.00 per share, the net
proceeds to be received by the Company from the issuance and sale of the Common
Stock offered hereby are estimated to be approximately $19,846,000
(approximately $22,937,000 if the Underwriters' over-allotment option is
exercised in full), after deducting the underwriting discount and estimated
offering expenses. The net proceeds of the Offering will be used for working
capital and general corporate purposes, primarily to fund the expansion of the
Company's business, including possible future acquisitions. While the Company
regularly considers and evaluates possible acquisition and other opportunities,
it does not currently have any agreements or understandings with respect to any
such opportunities. Pending such uses, the net proceeds of the Offering will be
used to pay down indebtedness, on a pro rata basis, under the Lines of Credit.
Indebtedness borrowed under the Bank of America Line of Credit totalled $38.5
million at March 31, 1996 at a weighted average interest rate of 7.89% per
annum, approximately $36.0 million at May 31, 1996, and is estimated to be
approximately $36.0 million at the completion of the Offering. Indebtedness
borrowed under the Wells Fargo Line of Credit totalled $22.0 million at March
31, 1996 at a weighted average interest rate of 7.71% per annum, approximately
$27.2 million at May 31, 1996, and is estimated to be approximately $29.0
million at the completion of the Offering. See "Capitalization," "Risk
Factors -- Need for Additional Financing," "Recent Developments" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never paid, and has no present intention of paying, cash
dividends on its Common Stock. The Company anticipates that it will retain all
earnings for use in the Company's business, and the Company does not anticipate
paying cash dividends for the foreseeable future. Any determination in the
future to pay dividends will depend on the Company's financial condition,
capital requirements, results of operations, contractual limitations and any
other factors deemed relevant by the Board of Directors. Under the terms of the
Company's Lines of Credit, the Company is prohibited from paying cash dividends.
18
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996 and as adjusted to give effect to an assumed capital contribution by
Banner of $367,000 pursuant to the Reorganization and the receipt by the Company
of the assumed net proceeds from the sale of the Common Stock offered hereby at
an assumed initial public offering price of $12.00 per share (which is the
midpoint of the filing range set forth on the cover page hereof) and the
application of the estimated net proceeds therefrom. This table should be read
in conjunction with the financial statements of the Company and the notes
thereto appearing elsewhere in this Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
AS
ACTUAL ADJUSTED(1)
------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
DEBT:
Bank of America Line of Credit(2).................................... $38,529 $25,886
Wells Fargo Line of Credit........................................... 21,950 14,747
Long-term debt....................................................... 850 850
------- -------
Total debt........................................................... 61,329 41,483
------- -------
STOCKHOLDER'S EQUITY:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; no
shares outstanding; no shares outstanding as adjusted............. -- --
Common Stock, $0.01 par value; 20,000,000 shares authorized;
5,150,000 shares outstanding; 7,000,000 shares outstanding as
adjusted.......................................................... 52 70
Additional paid-in capital........................................... 24,879 45,074
Retained earnings.................................................... 8,601 8,601
------- -------
Total stockholder's equity........................................... 33,532 53,745
------- -------
Total capitalization................................................. $94,861 $95,228
======= =======
</TABLE>
- ---------------
(1) Assumes that the estimated net proceeds of $19,846,000 are applied to pay
down, on a pro rata basis, the Lines of Credit.
(2) The Company expects that the borrowings under the Bank of America Line of
Credit will approximate $36.0 million at the closing of the Offering
(approximately $36.0 million at May 31, 1996) and that the borrowings under
the Wells Fargo Line of Credit will approximate $29.0 million at the closing
of the Offering (approximately $27.2 million at May 31, 1996).
19
<PAGE> 22
DILUTION
The net tangible book value of the Common Stock as of March 31, 1996 was
$32.1 million, or $6.24 per share. Net tangible book value per share represents
the amount of the Company's stockholder's equity, less intangible assets,
divided by the pro forma number of shares of Common Stock outstanding. Dilution
per share represents the difference between the amount per share paid by
purchasers of shares of Common Stock in the Offering and the pro forma net
tangible book value per share of Common Stock immediately after completion of
the Offering. After (i) giving effect to the sale of the 1,850,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$12.00 per share, (ii) an assumed capital contribution by Banner of $367,000
pursuant to the Reorganization and (iii) deducting the underwriting discount and
estimated offering expenses payable by the Company, pro forma net tangible book
value of the Company as of March 31, 1996, would have been $52.4 million, or
$7.48 per share. This represents an immediate increase in pro forma net tangible
book value of $1.24 per share to Banner and an immediate dilution of $4.52 per
share to new investors purchasing Common Stock in the Offering, as illustrated
in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $12.00
Net tangible book value per share before the Offering............. $6.24
Increase in tangible book value per share attributable to New
Investors and capital contribution by Banner................... 1.24
Pro Forma Net tangible book value per share after the Offering...... 7.48
------
Dilution per share to New Investors................................. $ 4.52
======
</TABLE>
The following table sets forth on a pro forma basis as of March 31, 1996
the difference between the existing stockholder and the purchasers of shares in
the Offering with respect to the number of shares purchased from the Company,
the total consideration paid and the average price per share, assuming an
initial public offering price of $12.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------- ------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Existing stockholder............. 5,150,000 73.6% $25,298 53.3% $ 4.91
New Investors.................... 1,850,000 26.4 22,200 46.7 12.00
--------- ---- ------- ----
Total.................. 7,000,000 100.0% $47,498 100.0%
========= ==== ======= ====
</TABLE>
20
<PAGE> 23
SELECTED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company's consolidated financial position as of December 31, 1994 and 1995, and
its results of operations for the fiscal years ended October 31, 1993 and 1994,
the two months ended December 31, 1993 and 1994 and the years ended December 31,
1994 and 1995 has been derived from the audited consolidated financial
statements of the Company appearing elsewhere in this Prospectus. This
information should be read in conjunction with such consolidated financial
statements and the notes thereto. The selected financial data with respect to
the Company's consolidated financial position as of October 31, 1993 and 1994
has been derived from the audited consolidated financial statements of the
Company, which are not presented herein. The selected financial data with
respect to the Company's consolidated financial position as of October 31, 1991
and 1992 and March 31, 1996 and its results of operations for the seven months
ended October 31, 1991, the year ended October 31, 1992, the year ended December
31, 1993 and the three months ended March 31, 1995 and 1996 has been derived
from unaudited financial statements, which in the opinion of the Company's
management reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations for
the unaudited periods. The results of operations for the interim periods are not
necessarily indicative of the results of operations for the full fiscal year.
SELECTED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWO MONTHS THREE MONTHS
YEARS ENDED ENDED DECEMBER YEARS ENDED ENDED
OCTOBER 31, 31, DECEMBER 31, MARCH 31,
------------------------------------- --------------- --------------------------- ---------------
1991(1) 1992 1993 1994 1993 1994 1993 1994 1995 1995 1996
------- ------- ------- ------- ------ ------ ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA:
Revenues:
Consumer Product
Portfolio interest
income................ $4,482 $ 8,145 $ 9,010 $11,444 $1,714 $2,057 $ 9,420 $11,787 $12,508 $2,955 $3,205
Small Loan Portfolio
interest income....... -- -- 134 672 54 439 188 1,057 5,095 1,009 2,093
Automobile sales........ -- -- -- -- -- -- -- -- 4,417 -- 2,038
Transaction fees on
contracts purchased
from related party.... 392 747 830 844 137 150 829 857 916 229 227
Other income(2)......... 652 1,253 1,457 1,756 304 416 1,445 1,868 3,653 654 1,722
------ ------- ------- ------- ------ ------ ------- ------- ------- ------ ------
Total Revenues........ 5,526 10,145 11,431 14,716 2,209 3,062 11,882 15,569 26,589 4,847 9,285
------ ------- ------- ------- ------ ------ ------- ------- ------- ------ ------
Costs and Expenses:
Operating expenses...... 1,980 3,986 4,519 5,009 864 1,025 4,461 5,170 8,150 1,522 2,504
Cost of automobiles
sold.................. -- -- -- -- -- -- -- -- 3,071 -- 1,355
Provision for credit
losses................ 878 2,654 3,264 3,002 696 1,617 3,447 3,923 5,859 1,106 2,347
Interest expense........ 1,776 2,306 2,279 2,523 339 617 2,235 2,801 4,278 1,075 1,241
------ ------- ------- ------- ------ ------ ------- ------- ------- ------ ------
Income before taxes..... 892 1,199 1,369 4,182 310 (197) 1,739 3,675 5,231 1,144 1,838
Income tax expense...... 371 503 572 1,694 127 (74) 727 1,493 2,112 465 735
------ ------- ------- ------- ------ ------ ------- ------- ------- ------ ------
Net income.............. $ 521 $ 696 $ 797 $ 2,488 $ 183 $ (123) $ 1,012 $ 2,182 $ 3,119 $ 679 $1,103
====== ======= ======= ======= ====== ====== ======= ======= ======= ====== ======
Pro forma net income
per share(3).......... $ 0.61 $ 0.21
======= ======
Supplementary net income
per share(4).......... $ 0.58 $ 0.19
======= ======
</TABLE>
- ---------------
(1) Reflects operations for the seven months ended October 31, 1991, which was
the first fiscal period of the Company's operations subsequent to the 1991
Acquisition.
21
<PAGE> 24
(2) Includes administrative fees charged on certain small loan contracts and,
beginning in 1995, interest earned on the Automobile Finance Portfolio and
Travel Finance Portfolio and net revenues from the sales of airline tickets.
(3) Pro forma net income per share is based on 5,150,000 shares of Common Stock
issued by the Company pursuant to the Reorganization that are assumed to be
outstanding as of January 1, 1995.
(4) Supplementary net income per share is based on 5,150,000 shares of Common
Stock issued by the Company pursuant to the Reorganization and 1,850,000
shares of Common Stock to be sold by the Company pursuant to the Offering as
if all such shares were outstanding as of January 1, 1995, and also gives
effect to a reduction in interest expense resulting from the reduction of
indebtedness upon application of the net proceeds of the Offering as if it
had occurred on January 1, 1995.
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31, MARCH 31, 1996
------------------------------------- ------------------ ------------------------
1991 1992 1993 1994 1994 1995 ACTUAL AS ADJUSTED(1)
------- ------- ------- ------- ------- -------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash....................... $ -- $ -- $ 931 $ 1,886 $ 215 $ 7 $ 133 $ 500
Installment Credit
Portfolio................ 40,541 45,094 47,026 50,626 56,337 62,353 59,896 59,896
Small Loan Portfolio....... 600 6,036 13,991 31,911 30,002 30,002
Total assets............... 43,198 48,158 51,567 61,597 73,942 101,440 97,331 97,698
Total debt................. 32,046 34,250 33,700 42,287 48,845 64,817 61,329 41,483
Stockholder's equity....... 10,852 13,399 17,146 18,560 23,951 33,632 33,532 53,745
</TABLE>
- ---------------
(1) Adjusted to reflect the sale of Common Stock offered hereby, an assumed
capital contribution by Banner of $367,000 pursuant to the Reorganization
and the application of the estimated net proceeds therefrom as set forth
under "Use of Proceeds."
SUPPLEMENTAL FINANCIAL DATA
The following table sets forth certain unaudited consolidated operating
results for each of the periods presented. This information has been prepared on
the same basis as the audited consolidated financial statements and includes all
adjustments (which consist solely of normal recurring adjustments) necessary to
present fairly the financial information of such periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1994 1994 1994 1994 1995 1995 1995 1995 1996
--------- -------- ------------- ------------ --------- --------- ------------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer Product
Portfolio
interest
income......... $ 2,881 $2,772 $ 2,947 $3,187 $ 2,955 $ 3,118 $ 3,348 $ 3,087 $3,205
Small Loan
Portfolio
interest
income........ 141 164 201 551 1,009 1,126 1,327 1,633 2,093
Automobile
sales......... -- -- -- -- -- 385 2,528 1,504 2,038
Transaction fees
on contracts
purchased from
related
party......... 206 207 222 222 229 227 226 234 227
Other income.... 479 447 494 448 654 711 840 1,448 1,722
------ ------ ------ ------ ------ ------ ------ ------
Total
revenues...... 3,707 3,590 3,864 4,408 4,847 5,567 8,269 7,906 9,285
------ ------ ------ ------ ------ ------ ------ ------
Operating
expenses...... 1,109 1,179 1,366 1,516 1,522 1,751 2,266 2,611 2,504
Cost of
automobiles
sold.......... -- -- -- -- -- 274 1,685 1,112 1,355
Provision for
credit
losses........ 627 640 695 1,961 1,106 1,309 1,545 1,899 2,347
Interest
expense....... 536 610 773 882 1,075 1,097 1,027 1,079 1,241
------ ------ ------ ------ ------ ------ ------ ------
Income before
taxes......... 1,435 1,161 1,030 49 1,144 1,136 1,746 1,205 1,838
Income tax
expense....... 579 470 418 26 465 459 702 486 735
------ ------ ------ ------ ------ ------ ------ ------
Net income...... $ 856 $ 691 $ 612 $ 23 $ 679 $ 677 $ 1,044 $ 719 $1,103
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
22
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information
under "Selected Financial Data" and the Company's Consolidated Financial
Statements and Notes thereto and other financial data, included elsewhere in the
Prospectus.
OVERVIEW
In pursuit of the Company's business strategy, since 1992 the Company has
expanded its direct financing business by offering consumer financing through
additional installment credit stores opened by Banner, by increasing the number
and type of products and services financed, and by offering new financial
products and services. In 1992, the Company began offering unsecured small loans
generally ranging from $300 to $1,500 with average loan terms of 12 months, and
began offering installment credit finance to Banner's customers at three
additional installment credit stores in greater Los Angeles and one additional
installment credit store in San Francisco that were opened or acquired by Banner
in 1994. In 1995, the Company opened two finance centers offering small loans
and travel finance and one automobile sales location in greater Los Angeles, and
began offering consumer product finance to Banner's customers at one additional
installment credit store in greater Los Angeles that was opened by Banner in
1995. In 1995, the Company also began offering Company-financed sales of used
automobiles. As a result of this rapid growth, results of operations have been
impacted, are not readily comparable from year to year or from period to period,
and are not necessarily indicative of future operating results.
23
<PAGE> 26
SEGMENT DATA
Financial Trends
The following sets forth certain information relating to the Company's
financial trends for the periods indicated.
CONSUMER PRODUCT PORTFOLIO
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE CONTRACT BALANCE)
<TABLE>
<CAPTION>
TWO MONTHS ENDED THREE MONTHS
YEARS ENDED YEARS ENDED ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
----------------- ----------------- --------------------------- -----------------
1992 1993 1993 1994 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross receivable (at end
of period)............. $54,038 $57,250 $60,590 $67,514 $60,590 $67,514 $67,811 $63,466 $63,069
Deferred interest (at end
of period)............. 6,354 7,028 7,657 7,603 7,657 7,603 7,796 6,937 7,203
------- ------- ------- ------- ------- ------- ------- ------- -------
Net receivable (at end of
period)................ 47,684 50,222 52,933 59,911 52,933 59,911 60,015 56,529 55,866
Deferred insurance
revenues (at end of
period)................ 294 536 529 405 529 405 401 365 326
Allowance for credit
losses (at end of
period)................ 2,296 2,660 2,786 3,169 2,786 3,169 3,711 3,316 3,972
------- ------- ------- ------- ------- ------- ------- ------- -------
Net carrying value....... $45,094 $47,026 $49,618 $56,337 $49,618 $56,337 $55,903 $52,848 $51,568
======= ======= ======= ======= ======= ======= ======= ======= =======
Average net receivable... $46,690 $51,907 $51,473 $56,335 $52,456 $53,656 $57,276 $58,214 $57,810
Number of contracts (at
end of period)......... N/A N/A 66,353 76,984 66,353 76,984 84,555 76,067 81,798
Average net contract
balance................ N/A N/A $798 $778 $798 $778 $710 $743 $683
Average interest bearing
liabilities(1)......... 32,736 36,404 34,275 38,573 36,163 37,549 39,284 40,717 38,792
Total interest
income(2).............. 8,145 9,010 1,714 2,057 9,420 11,787 12,508 2,955 3,205
Total interest
expense(1)............. 2,306 2,279 335 534 2,231 2,579 3,242 839 780
Net interest income
before provision for
credit
losses................. 5,839 6,731 1,379 1,523 7,189 9,208 9,266 2,116 2,425
Net provision for credit
losses................. 2,654 3,198 655 1,229 3,340 3,332 3,852 826 1,191
Net write-offs........... 1,688 2,834 529 625 2,897 2,949 3,310 679 930
Average interest rate on
average net
receivable............. 17.4% 17.4% 20.0% 21.9% 18.0% 22.0% 21.8% 20.3% 22.2%
Average interest rate on
interest bearing
liabilities............ 7.0% 6.3% 5.9% 8.3% 6.2% 6.9% 8.3% 8.2% 8.0%
Net Interest Spread...... 10.4% 11.1% 14.1% 13.6% 11.8% 15.1% 13.5% 12.1% 14.2%
</TABLE>
24
<PAGE> 27
SMALL LOAN PORTFOLIO
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE CONTRACT BALANCE)
<TABLE>
<CAPTION>
YEAR ENDED TWO MONTHS ENDED THREE MONTHS
OCTOBER YEARS ENDED ENDED
31, DECEMBER 31, DECEMBER 31, MARCH 31,
---------- ---------------- -------------------------- -----------------
1993(3) 1993 1994 1993 1994 1995 1995 1996
---------- ------ ------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross receivable (at end of
period)........................ $ 705 $4,314 $16,735 $4,314 $16,735 $37,868 $18,267 $35,678
Deferred interest (at end of
period)........................ 26 241 1,809 241 1,809 4,187 1,772 3,491
---- ------ ------- ------ ------- ------- ------- -------
Net receivable (at end of
period)........................ 679 4,073 14,926 4,073 14,926 33,681 16,495 32,187
Deferred administrative fees and
insurance revenues (at end of
period)........................ 13 166 392 166 392 576 352 579
Allowance for credit losses (at
end of period)................. 66 107 543 107 543 1,194 737 1,606
---- ------ ------- ------ ------- ------- ------- -------
Net carrying value............... $ 600 $3,800 $13,991 $3,800 $13,991 $31,911 $15,406 $30,002
==== ====== ======= ====== ======= ======= ======= =======
Average net receivable........... $ 850 $2,009 $10,509 $1,131 $ 5,662 $20,219 $15,764 $33,335
Number of contracts (at end of
period)........................ 3,127 10,616 26,166 10,616 26,166 55,241 32,066 58,993
Average net contract balance..... $ 217 $ 384 $ 570 $ 384 $ 570 $ 610 $ 514 $ 546
Average interest bearing
liabilities(1)................. -- 400 5,887 67 3,165 12,902 10,688 23,064
Total administrative fee
income......................... 52 13 145 65 458 1,133 263 414
Total interest income(2)......... 134 54 439 188 1,057 5,095 1,009 2,093
Total interest expense(1)........ -- 4 83 4 222 1,036 236 461
Net interest income before
provision for credit losses.... 134 50 356 184 835 4,059 773 1,632
Net provision for credit
losses......................... 66 41 388 107 591 1,547 280 899
Net write-offs................... -- -- 35 -- 155 896 86 487
Average interest rate on average
net receivable................. 15.8% 16.1% 25.1% 16.6% 18.7% 25.2% 25.6% 25.1%
Average interest rate on interest
bearing liabilities............ N/A 6.0% 8.5% 6.0% 7.0% 8.0% 8.8% 8.0%
Net Interest Spread.............. 15.8% 10.1% 16.6% 10.6% 11.7% 17.2% 16.8% 17.1%
</TABLE>
- ---------------
(1) Amounts represent borrowings and related interest expense on the Company's
Lines of Credit for the respective portfolios, excluding amounts related to
the Company's other borrowings.
(2) Amounts represent interest income on installment contracts, excluding
administrative fees, late charges and other charges, which are included in
other income in the Consolidated Statements of Income appearing elsewhere in
this Prospectus.
(3) The Company commenced its small loan business in December 1992.
AUTOMOBILE FINANCE PORTFOLIO
The Company began offering Company-financed sales of used automobiles in
mid-1995. At December 31, 1995 and March 31, 1996, respectively, the gross
receivable of the Automobile Finance Portfolio was $5.5 million and $7.7
million, the net receivable was $4.2 million and $5.8 million, and the carrying
value of the portfolio was $3.8 million and $5.3 million. In addition, the
number of contracts outstanding at December 31, 1995 and March 31, 1996,
respectively, was 624 and 877 with an average net contract balance at each date
of approximately $6,700. At December 31, 1995 and March 31, 1996, the average
interest rate on the average portfolio was approximately 21% and the Net
Interest Spread was approximately 13%. Due to the size and lack of seasoning of
this portfolio, there can be no assurance that the Company's experience to date
with the Automobile Finance Portfolio will be indicative of future results of
this portfolio.
25
<PAGE> 28
TRAVEL FINANCE PORTFOLIO
The Company also began offering Company-financed sales of airline tickets
in mid-1995. At December 31, 1995 and March 31, 1996, respectively, the gross
receivable of the Travel Finance Portfolio was $3.0 million and $3.4 million,
the net receivable was $2.7 million and $3.1 million and the carrying value of
the portfolio was $2.7 million and $3.0 million. In addition, the number of
contracts outstanding at December 31, 1995 and March 31, 1996, respectively, was
5,811 and 7,495 with an average net contract balance of approximately $460 and
$400. At December 31, 1995 and March 31, 1996, respectively, the average
interest rate on the average portfolio was approximately 26% and 25% and the Net
Interest Spread was approximately 18% and 17%. Due to the size and lack of
seasoning of this portfolio, there can be no assurance that the Company's
experience to date with its Travel Finance Portfolio will be indicative of
future results of this portfolio.
Analysis of Changes in Net Interest Income
The following table segregates the changes in net interest income between
changes in average balances ("Volume") and average rates ("Rate") for both
average net receivables and average interest bearing liabilities of the Consumer
Product Portfolio and the Small Loan Portfolio (dollars in thousands).
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED YEARS ENDED ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 MARCH 31, 1996
VERSUS VERSUS VERSUS
DECEMBER 31, 1993 DECEMBER 31, 1994 MARCH 31, 1995
------------------------ ------------------------ ----------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ------ ------ ------ ------ ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest
income:
Consumer Product Portfolio... $215 $2,152 $2,367 $ 795 $ (74) $ 721 $ (21 ) $271 $ 250
Small Loan Portfolio......... 753 116 869 2,718 1,320 4,038 1,125 (41) 1,084
---- ------ ------ ------ ------ ------ ------ ---- ------
968 2,268 3,236 3,513 1,246 4,759 1,104 230 1,334
---- ------ ------ ------ ------ ------ ------ ---- ------
Increase (decrease) in interest
expense:
Bank of America Line of
Credit..................... 86 262 348 119 544 663 (40 ) (19) (59)
Wells Fargo Line of Credit... 185 33 218 683 131 814 273 (48) 225
---- ------ ------ ------ ------ ------ ------ ---- ------
271 295 566 802 675 1,477 233 (67) 166
---- ------ ------ ------ ------ ------ ------ ---- ------
Increase in net interest
income....................... $697 $1,973 $2,670 $2,711 $ 571 $3,282 $ 871 $297 $1,168
==== ====== ====== ====== ====== ====== ====== ==== ======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED TWO MONTHS ENDED
OCTOBER 31, 1993 DECEMBER 31, 1994
VERSUS VERSUS
OCTOBER 31, 1992 DECEMBER 31, 1993
-------------------------- -------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ----- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest income:
Consumer Product Portfolio.............. $910 $ (45) $ 865 $162 $181 $ 343
Small Loan Portfolio.................... * * * 228 157 385
---- ----- ---- ---- ---- ----
910 (45) 865 390 338 728
---- ----- ---- ---- ---- ----
Increase (decrease) in interest expense:
Bank of America Line of Credit.......... 258 (285) (27) 42 157 199
Wells Fargo Line of Credit.............. * * * 55 24 79
---- ----- ---- ---- ---- ----
258 (285) (27) 97 181 278
---- ----- ---- ---- ---- ----
Increase in net interest income........... $652 $ 240 $ 892 $293 $157 $ 450
==== ===== ==== ==== ==== ====
</TABLE>
- ---------------
* Information not meaningful
26
<PAGE> 29
Credit Quality
The Company maintains reserves for credit losses in each of its portfolios
at levels that management believes are adequate to absorb potential losses.
Under the Company's guidelines, an account is deemed uncollectible and generally
is charged off at the earliest of such time the account is 91 days past due or
the account is otherwise deemed by the Company to be uncollectible. The
following sets forth the Company's charge-off experience and allowance for
credit losses. The Company does not believe that its credit quality experience
can be readily compared to less specialized consumer finance companies due to
the Hispanic orientation and uniform credit profile of its customers.
CONSUMER PRODUCT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWO MONTHS ENDED THREE MONTHS
YEARS ENDED YEARS ENDED ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
------------------- ------------------- ------------------------------- -------------------
1992 1993 1993 1994 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average net
receivable............ $46,690 $51,907 $51,473 $56,335 $52,456 $53,656 $57,276 $58,214 $57,810
Net provision for credit
losses................ 2,654 3,198 655 1,229 3,340 3,332 3,852 826 1,191
Net write-offs.......... 1,688 2,834 529 625 2,897 2,949 3,310 679 930
Provision for credit
losses as a percentage
of average net
receivable............ 5.7% 6.2% 7.6% 13.1% 6.4% 6.2% 6.7% 5.7% 8.2%
Net write-offs as a
percentage of average
net receivable........ 3.6% 5.5% 6.2% 6.7% 5.5% 5.5% 5.8% 4.7% 6.4%
END OF PERIOD
Net receivable.......... $47,684 $50,222 $52,933 $59,911 $52,933 $59,911 $60,015 $56,529 $55,866
Allowance for credit
losses................ 2,296 2,660 2,786 3,169 2,786 3,169 3,711 3,316 3,972
Allowance for credit
losses as a percentage
of net receivable..... 4.8% 5.3% 5.3% 5.3% 5.3% 5.3% 6.2% 5.9% 7.1%
</TABLE>
SMALL LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWO MONTHS ENDED THREE MONTHS
YEAR ENDED YEARS ENDED ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
------------ ------------------ ------------------------------ -------------------
1993(2) 1993 1994 1993 1994 1995 1995 1996
------------ ------ ------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average net receivable......... $850 $2,009 $10,509 $1,131 $ 5,662 $20,219 $15,764 $33,335
Net provision for credit
losses....................... 66 41 388 107 591 1,547 280 899
Net write-offs(1).............. 0 0 35 0 155 896 86 487
Provision for credit losses as
a percentage of average net
receivable................... 8.5% 12.2% 22.2% 9.5% 10.4% 7.7% 7.1% 10.8%
Net write-offs as a percentage
of average net
receivable(1)................ 0.0% 0.0% 2.0% 0.0% 2.7% 4.4% 2.2% 5.8%
END OF PERIOD
Net receivable................. $679 $4,073 $14,926 $4,073 $14,926 $33,681 $16,495 $32,187
Allowance for credit losses.... 66 107 543 107 543 1,194 737 1,606
Allowance for credit losses as
a percentage of net
receivable................... 9.7% 2.6% 3.6% 2.6% 3.6% 3.5% 4.5% 5.0%
</TABLE>
- ---------------
(1) The Company believes that as the Small Loan Portfolio seasons the net
write-offs and net write-offs as a percentage of average net receivable will
approximate those experienced by the Company in the Consumer Product
Portfolio.
(2) The Company commenced its small loan business in December 1992.
27
<PAGE> 30
AUTOMOBILE AND TRAVEL FINANCE PORTFOLIOS
At December 31, 1995 and March 31, 1996, respectively, the allowance for
credit losses in the Automobile Finance Portfolio was $410,000 and $544,000,
representing 9.8% and 9.3% of the end of period net receivable. At December 31,
1995 and March 31, 1996, respectively, the allowance for credit losses in the
Travel Finance Portfolio was $50,000 and $70,000, representing 1.8% and 2.3% of
the end of period net receivable.
Delinquency Experience
Borrowers under the Company's contracts are required to make monthly
payments. The following sets forth the Company's delinquency experience for
accounts with payments 31 days or more past due.
CONSUMER PRODUCT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31, MARCH 31,
--------------------- -------------------------- ----------------
1992 1993 1993 1994 1995 1995 1996
----------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Past due accounts (gross receivable):
31-60 days.............................. $ 1,485 $1,453 $1,316 $2,264 $1,943 $1,520 $1,552
61 days or more......................... 1,412 1,483 1,576 2,610 2,465 2,334 2,269
Accounts with payments 31 days or more
past due as a percentage of end of
period gross receivable................. 5.4% 5.1% 4.8% 7.2% 6.5% 6.1% 6.1%
</TABLE>
SMALL LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31, MARCH 31,
----------- ---------------------------- -----------------
1993 1993 1994 1995 1995 1996
----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Past due accounts (gross receivable):
31-60 days................................ $ 10 $ 9 $ 76 $ 500 $ 175 $ 572
61 days or more........................... 27 36 105 649 188 799
Accounts with payments 31 days or more past
due as a percentage of end of period gross
receivable(1)............................. 5.2% 1.0% 1.1% 3.0% 2.0% 3.8%
</TABLE>
- ---------------
(1) The Company believes that as the Small Loan Portfolio seasons the number of
accounts with payments 31 days or more past due as a percentage of end of
period gross receivable will conform to the levels the Company has
experienced in the Consumer Product Portfolio.
AUTOMOBILE AND TRAVEL FINANCE PORTFOLIOS
At December 31, 1995 and March 31, 1996, respectively, the dollar amount of
accounts 31 days or more past due in the Automobile Finance Portfolio was
$117,000 and $199,000 or 2.1% and 2.6% as a percentage of the end of period
gross receivable. At December 31, 1995 and March 31, 1996, respectively, the
dollar amount of accounts 31 days or more past due in the Travel Finance
Portfolio was $87,000 and $101,000 or 2.9% and 3.0% as a percentage of the end
of period gross receivable. Due to the size of and lack of seasoning of these
portfolios, there can be no assurance that the performance of the Company's
experience to date will be indicative of future results.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Total revenues in the three months ended March 31, 1996 increased to $9.3
million from $4.8 million in the three months ended March 31, 1995, an increase
of $4.4 million or 91.6%.
28
<PAGE> 31
Consumer Product Portfolio interest income in the three months ended March
31, 1996 increased to $3.2 million from $3.0 million in the three months ended
March 31, 1995, an increase of $0.3 million or 8.5%. All of this increase was
attributable to a rise in the average interest rate the Company earned on this
portfolio to 22.2% in the three months ended March 31, 1996 from 20.3% in the
three months ended March 31, 1995. The Consumer Product Portfolio averaged $57.8
million or $683 per contract in the three months ended March 31, 1996 compared
to $58.2 million or $743 per contract in the three months ended March 31, 1995.
The Company believes that this reduction may be attributable to a number of
factors, including general economic conditions in California.
Small Loan Portfolio interest income in the three months ended March 31,
1996 increased to $2.1 million from $1.0 million in the three months ended March
31, 1996, an increase of $1.1 million or 107.4%. All of this gain was
attributable to an increase in the Small Loan Portfolio, which averaged $33.3
million in the three months ended March 31, 1996 compared to $15.8 million in
the three months ended March 31, 1995. The average interest rate the Company
charged on this portfolio decreased slightly for the three months ended March
31, 1996 to 25.1% compared to 25.6% for the three months ended March 31, 1995.
The Company believes that this reduction is attributable to an increase in the
size of the loans it made in the three months ended March 31, 1996, which
averaged $546 at March 31, 1996 compared to $514 at March 31, 1995. Under
California law the interest rate the Company is allowed to charge decreases as
the amount of the small loan increases. The Company currently charges the
maximum interest rate permitted under California law on its small loans.
For the three months ended March 31, 1996, revenues from the sale of
automobiles, which business commenced in June 1995, amounted to $2.0 million.
Other income for the three months ended March 31, 1996 increased to $1.7
million from $0.7 million in the three months ended March 31, 1995, an increase
of $1.1 million or 163.3%. Other income in the three months ended March 31, 1996
includes $0.2 million of net revenues earned from the sale of airline tickets,
which commenced in July 1995, and $0.4 million of interest income earned on the
Travel Finance Portfolio and Automobile Finance Portfolio. The remaining
increase in other income was primarily due to an increase of $0.2 million in
administrative fee income earned on the Small Loan Portfolio, and a $0.3 million
increase in late charges the Company earned on all of its receivable portfolios.
Operating expenses in the three months ended March 31, 1996 increased to
$2.5 million from $1.5 million in the three months ended March 31, 1995, an
increase of $1.0 million or 64.5%. Of this increase, $0.6 million is
attributable to operating costs and expenses incurred in connection with the
sale of automobiles and airline tickets which business commenced in July of
1995. The remaining increase of $0.4 million was primarily due to the expansion
of the small loan business, including an increase in the number of employees and
related payroll expenses.
The cost of automobiles sold for the three months ended March 31, 1996 was
$1.4 million.
The provision for credit losses in the three months ended March 31, 1996
increased to $2.3 million from $1.1 million in the three months ended March 31,
1995, an increase of $1.2 million or 112.2%. This increase was due to the growth
experienced by the Company in its Small Loan Portfolio, which generated a
provision of $0.9 million in the three months ended March 31, 1996 compared to
$0.3 million in the comparable period of 1995. The remaining increase of $0.6
million was primarily attributable to an increase of $0.4 million in the
provision for credit losses on the Company's Consumer Product Portfolio as a
result of increased write-offs in such portfolio, and $0.2 million provision for
credit losses provided on the Company's Automobile Finance Portfolio which its
operation commenced in June of 1995.
Interest expense in the three months ended March 31, 1996 increased to $1.2
million from $1.1 million in the three months ended March 31, 1995, an increase
of $0.2 million or 15.4%. This increase was primarily due to a higher level of
borrowings under the Lines of Credit used to support the growth in the Company's
Small Loan Portfolio, Travel Finance Portfolio and Automobile Finance Portfolio.
As a result of the foregoing factors, net income in the three months ended
March 31, 1996 increased to $1.1 million from $0.7 million in the three months
ended March 31, 1995, an increase of $0.4 million or 62.4%.
29
<PAGE> 32
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Total revenues in the year ended December 31, 1995 increased to $26.6
million from $15.6 million in the year ended December 31, 1994, an increase of
$11.0 million or 70.8%.
Consumer Product Portfolio interest income in the year ended December 31,
1995 increased to $12.5 million from $11.8 million in the year ended December
31, 1994, an increase of $0.7 million or 6.1%. Of this increase, $0.8 million
was attributable to an increase in the size of the Consumer Product Portfolio,
which averaged $57.3 million in the year ended December 31, 1995 compared to
$53.7 million in the year ended December 31, 1994. For the year ended December
31, 1995, the number of active contracts outstanding in the Consumer Product
Portfolio increased to 84,600, an increase of 9.8% over the comparable period in
1994. For the year ended December 31, 1995, the average balance in such
portfolio decreased to $710 from $778 in the year ended December 31, 1994, a
decrease of 8.7%. The Company believes that this reduction may be attributable
to a number of factors, including general economic conditions in California. The
average interest rate the Company earned on its Consumer Product Portfolio in
the year ended December 31, 1995 decreased to 21.8% from 22.0% in the year ended
December 31, 1994.
Small Loan Portfolio interest income in the year ended December 31, 1995
increased to $5.1 million from $1.1 million in the year ended December 31, 1994,
an increase of $4.0 million or 382.0%. Of this increase, $2.7 million was
attributable to an increase in loan demand and $1.3 million was attributable to
an increase in the average interest rate the Company earned on the average Small
Loan Portfolio. The average interest rate increased to 25.2% for the year ended
December 31, 1995 from 18.7% for the year ended December 31, 1994. The Company
currently charges the maximum interest rate permitted under California law on
its small loans. The average size of the Small Loan Portfolio increased to $20.2
million in the year ended December 31, 1995 from $5.7 million in the year ended
December 31, 1994, an increase of $14.6 million.
In the year ended December 31, 1995, revenues include $4.4 million
generated from the sale of automobiles, which business commenced in June 1995.
Other income in the year ended December 31, 1995 increased to $3.7 million
from $1.9 million in the year ended December 31, 1994, an increase of $1.8
million or 95.6%. Other income includes $0.4 million of net revenues earned from
the sale of airline tickets, which business commenced in July of 1995, and $0.4
million interest income earned on the Travel Finance Portfolio and Automobile
Finance Portfolio. The remaining increase in other income was primarily due to
an increase of $0.7 million in administrative fee income earned on the Small
Loan Portfolio.
Operating expenses in the year ended December 31, 1995 increased to $8.2
million from $5.2 million in the year ended December 31, 1994, an increase of
$3.0 million or 57.6%. Of this increase, $1.2 million is attributable to
operating expenses and costs incurred in connection with the sale of airline
tickets and used automobiles which began in the year ended December 31, 1995.
The remaining increase of $1.8 million was primarily due to the expansion of the
small loan business, including an increase in the number of employees and
related payroll expenses of $0.9 million, and to an increase in advertising
expenses of $0.3 million.
The cost of automobiles sold in the year ended December 31, 1995 was $3.1
million.
The provision for credit losses in the year ended December 31, 1995
increased to $5.9 million from $3.9 million in the year ended December 31, 1994,
an increase of $1.9 million or 49.3%. This increase was primarily due to the
growth experienced by the Company in its Small Loan Portfolio, which generated a
provision of $1.5 million for the year ended December 31, 1995 compared to $0.6
million in the comparable period of 1994. The Automobile Finance Portfolio and
Travel Finance Portfolio accounted for $0.5 million of the provision for credit
losses during 1995. The remaining increase was attributable to growth in the
Company's Consumer Product Portfolio and a higher provision level on this
portfolio in 1995 as compared to 1994.
Interest expense in the year ended December 31, 1995 increased to $4.3
million from $2.8 million in the year ended December 31, 1994, an increase of
$1.5 million or 52.7%. This increase was primarily due to a higher level of
borrowings under the Lines of Credit used to support the growth in the Company's
Installment
30
<PAGE> 33
Credit Portfolio and Small Loan Portfolio, and to a higher level of interest
charged by the lenders under the respective Lines of Credit, as a result of
increases in their borrowing rates.
As a result of the foregoing factors, net income in the year ended December
31, 1995 increased to $3.1 million from $2.2 million for the year ended December
31, 1994, an increase of $0.9 million or 42.9%.
Year and Two Months Ended December 31, 1994 Compared to Year and
Two Months Ended December 31, 1993
Total revenues in the year ended December 31, 1994 increased to $15.6
million from $11.9 million in the year ended December 31, 1993, an increase of
$3.7 million or 31.0%. For the two months ended December 31, 1994, total
revenues increased to $3.1 million from $2.2 million for the two months ended
December 31, 1993, an increase of $0.9 million or 38.6%.
Consumer Product Portfolio interest income in the year ended December 31,
1994 increased to $11.8 million from $9.4 million in the year ended December 31,
1993, an increase of $2.4 million or 25.1%. Of this increase, $2.2 million was
attributable to an increase in the average interest rate the Company earned on
the Consumer Product Portfolio, which increased to 22.0% in the year ended
December 31, 1994 from 18.0% in the year ended December 31, 1993. The remaining
increase of $0.2 million was attributable to an increase in the size of the
Consumer Product Portfolio, which averaged $53.7 million in the year ended
December 31, 1994 compared to $52.5 million in the year ended December 31, 1993.
Consumer Product Portfolio interest income for the two months ended December 31,
1994 increased to $2.1 million from $1.7 million for the two months ended
December 31, 1993, an increase of $0.3 million or 20.0%. Of this increase, $0.2
million was due to an increase in the average size of the Consumer Product
Portfolio which averaged $56.3 million for the two months ended December 31,
1994 compared to $51.5 million for the two months ended December 31, 1993. The
remaining increase of $0.2 million was attributable to an increase in the
interest rate the Company earned on the Consumer Product Portfolio, which
increased to 21.9% for the two months ended December 31, 1994 from 20.0% for the
two months ended December 31, 1993.
Small Loan Portfolio interest income in the year ended December 31, 1994
increased to $1.1 million from $0.2 million in the year ended December 31, 1993,
an increase of $0.9 million or 462.2%. Of this increase, $0.8 million was
attributable to an increase in loan demand and $0.1 million was attributable to
an increase in the average interest rate the Company earned on the average Small
Loan Portfolio. The average interest rate increased to 18.7% for the year ended
December 31, 1994 from 16.6% for the year ended December 31, 1993. The average
size of the Small Loan Portfolio increased to $5.7 million in the year ended
December 31, 1994 from $1.1 million in the year ended December 31, 1993, an
increase of $4.5 million. Small Loan Portfolio interest income for the two
months ended December 31, 1994 increased to $0.4 million from $0.1 million for
the two months ended December 31, 1993, an increase of $0.4 million or 713.0%.
Of this increase, $0.2 million was due to an increase in loan demand and $0.2
million was attributable to an increase in the average interest rate the Company
earned on the Small Loan Portfolio. The average size of the Small Loan Portfolio
increased to $10.5 million for the two months ended December 31, 1994 from $2.0
million for the two months ended December 31, 1993, an increase of $8.5 million.
The average interest rate the Company earned on the Small Loan Portfolio
increased to 25.1% for the two months ended December 31, 1994 from 16.1% for the
two months ended December 31, 1993.
Other income in the year ended December 31, 1994 increased to $1.9 million
from $1.4 million in the year ended December 31, 1993, an increase of $0.4
million or 29.3%. For the two months ended December 31, 1994, other income
increased to $0.4 million from $0.3 million for the two months ended December
31, 1993, an increase of $0.1 million or 36.8%. This increase was primarily due
to an increase in administrative fee income and to increased late fee income.
Operating expenses in the year ended December 31, 1994 increased to $5.2
million from $4.5 million in the year ended December 31, 1993, an increase of
$0.7 million or 15.9%. Operating expenses for the two months ended December 31,
1994 increased to $1.0 million from $0.9 million for the two months ended
December 31, 1993, an increase of $0.1 million or 18.6%. This increase was
primarily due to increased expenses in connection with the Company's development
of its small loan business, which include an increase
31
<PAGE> 34
in the number of employees and related payroll necessary to accommodate the
increased number of contracts associated with the expansion of this business.
The provision for credit losses in the year ended December 31, 1994
increased to $3.9 million from $3.4 million in the year ended December 31, 1993,
an increase of $0.5 million, or 13.8%. This increase was attributable to the
growth in the Company's Small Loan Portfolio. The Company's provision for credit
losses on its Consumer Product Portfolio was $3.3 million for both of the years
ended December 31, 1994 and 1993. The provision for credit losses as a
percentage of the average Consumer Product Portfolio was 6.2% in the year ended
December 31, 1994 compared to 6.4% in the year ended December 31, 1993. The
provision for credit losses for the two months ended December 31, 1994 increased
to $1.6 million from $0.7 million for the two months ended December 31, 1993, an
increase of $0.9 million or 132.3%. For the two month period ended December 31,
1994, the provision for credit losses as a percentage of average net receivable
in the Consumer Product Portfolio was 13.1% compared to 7.6% in the comparable
period of 1993, and the provision for credit losses as a percentage of average
net receivable in the Small Loan Portfolio was 22.2% compared to 12.2%,
respectively, for those same periods. These increases reflect the Company's
decision to provide additional provision for credit losses in light of the
significant increase in the Company's Combined Receivable Portfolio in the two
months ended December 31, 1994, and the Company's concern that the California
economy would continue to be depressed in 1995.
Interest expense in the year ended December 31, 1994 increased to $2.8
million from $2.2 million during the year ended December 31, 1993, an increase
of $0.6 million or 25.3%. Interest expense for the two months ended December 31,
1994 increased to $0.6 million from $0.3 million for the months ended December
31, 1993, an increase of $0.3 million or 82.0%. These increases were due to a
higher level of bank borrowings used to support the growth on the Company's
Combined Receivable Portfolio and to higher interest rates on the Company's
Lines of Credit.
As a result of the foregoing factors, net income in the year ended December
31, 1994 increased to $2.2 million compared to $1.0 million in the year ended
December 31, 1993, an increase of $1.2 million or 115.6%. The Company incurred a
net loss for the two months ended December 31, 1994 of $0.1 million compared to
net income of $0.2 million for the two months ended December 31, 1993.
Year Ended October 31, 1993 Compared to Year Ended October 31, 1992
Total revenues in the year ended October 31, 1993 increased to $11.4
million from $10.1 million in the year ended October 31, 1992, an increase of
$1.3 million or 12.7%.
Consumer Product Portfolio interest income in the year ended October 31,
1993 increased to $9.0 million from $8.1 million in the year ended October 31,
1992, an increase of $0.9 million or 10.6%. This increase was attributable to an
increase in the size of the Consumer Product Portfolio, which averaged $51.9
million in the year ended October 31, 1993 compared to $46.7 million in the year
ended October 31, 1992. The average interest rate the Company earned on the
Consumer Product Portfolio did not materially change during the year ended
October 31, 1993, averaging 17.4% during each of the years ended October 31,
1993 and October 31, 1992.
Other income in the year ended October 31, 1993 increased to $1.5 million
from $1.3 million in the year ended October 31, 1992, an increase of $0.2
million or 16.3%. This increase was attributable to an increase in late fees and
sales of insurance products.
Operating expenses in the year ended October 31, 1993 increased to $4.5
million from $4.0 million in the year ended October 31, 1992, an increase of
$0.5 million or 13.4%. This increase was primarily due to additional costs
incurred in managing a higher level of outstanding contracts and to certain
expenses incurred in connection with the introduction of the small loan
business.
The provision for credit losses in the year ended October 31, 1993
increased to $3.3 million compared to $2.7 million in the year ended October 31,
1992, an increase of $0.6 million or 23.0%. Although the Company's average
Consumer Product Portfolio in the year ended October 31, 1993 increased to $51.9
million compared to $46.7 million in the year ended October 31, 1992, the
increase in the provision was primarily due
32
<PAGE> 35
to the recession that the California economy entered into in the year ended
October 31, 1993. The effect of the unfavorable economy is reflected in the
provision for credit losses expressed as a percentage of the average net
receivable in the Consumer Product Portfolio, which rose to 6.2% in the year
ended October 31, 1993 compared to 5.7% in the year ended October 31, 1992.
Interest expense in the year ended October 31, 1993 was $2.3 million, which
was unchanged from the year ended October 31, 1992.
As a result of the foregoing factors, net income in the year ended October
31, 1993 increased to $0.8 million from $0.7 million, an increase of $0.1
million or 14.5%.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through the cash flow
generated from operations, borrowings under its Lines of Credit, and from
periodic contributions to capital made by Holdings and related entities. See
"The Reorganization and Certain Relationships and Agreements among the Company,
Banner, Holdings and Other Affiliates" and "Principal Shareholders."
For the three months ended March 31, 1996, net cash provided from
operations totalled $2.9 million, while investing activities provided an
additional $2.0 million of cash flow. During this period the Company repaid $3.5
million of notes payable and made a return of capital of $1.2 million to Banner.
Net cash provided from operations totaled $4.3 million, $6.7 million and
$9.2 million for the year ended October 31, 1993, and the years ended December
31, 1994 and 1995, respectively. During these periods, the primary source of net
cash provided from operations was net income before non-cash charges,
principally the provision for credit losses.
For the years ended October 31, 1993 and December 31, 1994 and 1995, net
cash flow generated from operations was insufficient to fund the Company's
outlays for capital expenditures and the significant growth it experienced in
its combined receivable portfolio, which required cash outflows of $5.8 million
in the year ended October 31, 1993, and of $20.8 million and $29.8 million in
the year ended December 31, 1994 and 1995, respectively. To fund its
expenditures and support the growth in its combined receivable portfolio, the
Company relied on capital contributions from Holdings and bank borrowings made
under its credit facilities. Capital contributions amounted to $3.0 million,
$1.6 million and $6.6 million in the year ended October 31, 1993 and the years
ended December 31, 1994 and 1995, respectively. Bank borrowings provided cash of
$12.2 million and $15.1 million in the years ended December 31, 1994 and 1995,
respectively.
Currently, the Company funds its lending activities and operations in part
with borrowings under the Bank of America Line of Credit and Wells Fargo Line of
Credit. Borrowings under the Bank of America Line of Credit may be used only to
finance the Company's consumer product finance business. Banner is a guarantor
under the Bank of America Line of Credit. The amount of credit available at any
one time under the Bank of America Line of Credit is limited to 75% of eligible
contracts in the Company's Consumer Product Portfolio. As of March 31, 1996, the
total amount available to the Company under the Bank of America Line of Credit
was $38.5 million, all of which was outstanding. The Bank of America Line of
Credit was amended and restated as of April 29, 1996 and expires on August 30,
1996. Borrowings under the Wells Fargo Line of Credit may be used only to
finance the Company's travel finance, auto finance and small loan businesses.
The amount of credit available at any one time under the Wells Fargo Line of
Credit is limited to 70% of eligible contracts in Small Loan, Automobile Finance
and Travel Finance Portfolios. As of March 31, 1996, the total amount available
to the Company under the Wells Fargo Line of Credit was $27.9 million, of which
$22.0 million was outstanding. The Wells Fargo Line of Credit expires on July 1,
1996. The Company believes it will be able to renew both of its Lines of Credit.
However, there can be no assurance that the Company will be able to renew such
Lines of Credit. See "Risk Factors -- Need for Additional Financing." The
Company intends to use a portion of the net proceeds of the Offering to reduce
outstanding borrowings, on a pro rata basis, under the Lines of Credit, thereby
increasing the amount available to the Company under such Lines of Credit.
The Lines of Credit each contain certain restrictive covenants that
require, among other things, the maintenance of certain financial ratios and
amounts. The Bank of America Line of Credit requires the Company to maintain a
specified tangible net worth, specific cash flow to interest coverage ratios and
specific
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<PAGE> 36
debt to tangible net worth coverage ratios for one of its subsidiaries and
Banner combined, as such terms are defined in the Bank of America Line of
Credit. Other ratios related to the performance of the Company's Consumer
Product Portfolio must be maintained within limits, including maximum ratios of
past due accounts to eligible contracts and net write-offs to average net
receivables, and a minimum ratio of the allowance for credit losses to net
receivables, in all cases as such terms are defined in the Bank of America Line
of Credit. The Wells Fargo Line of Credit requires the Company to maintain
specified levels of tangible net worth, net income, and cash flow to interest
coverage ratios for one of its subsidiaries, and cannot exceed a specified ratio
of debt to tangible net worth for such subsidiary, as such terms are defined in
the Wells Fargo Line of Credit. In addition, the ratio of the net provision for
credit losses to net receivables for the Company's Small Loan, Automobile
Finance and Travel Finance portfolios must be maintained below a specified level
as such terms are defined in the Wells Fargo Line of Credit. At March 31, 1996,
the Company was in compliance with such restrictive covenants in the Lines of
Credit.
The Company may securitize all or portions of its gross receivable
portfolio when it generates sufficient volume of such receivables.
Securitization would increase the Company's liquidity and reduce its reliance on
its Lines of Credit. However, the Company has never consummated a securitization
transaction, and the securitization markets for many of the Company's
receivables are limited. Accordingly, there can be no assurance that the Company
will successfully implement a securitization program.
The Company requires substantial capital to finance its business.
Consequently, the Company's ability to grow and the future of its operations
will be affected by the availability of financing and the terms thereof. The
amount of debt the Company requires from time to time depends on the Company's
needs for cash, as determined by its operating performance and its ability to
borrow under the terms of its various loan agreements. The Company intends to
meet its short-term liquidity needs with cash flow from operations, a portion of
the proceeds from the Offering and borrowings under its Lines of Credit.
The estimated net proceeds of the Offering of approximately $19.8 million
are expected to be sufficient to fund the Company's liquidity requirements for
more than 12 months if the Company were to maintain its operations at current
levels. However, the Company may need to arrange for additional bank borrowings
or additional debt or equity financing as it continues to grow. The Company
believes that its Lines of Credit can be renewed, that the increase in equity
resulting from the Offering will facilitate the Company's ability to incur
increased indebtedness, and that it can obtain alternative financing sources
that, together with cash flow from operations and the net proceeds from the
Offering, would provide the Company sufficient resources to meet its capital
requirements. However, there can be no assurance that the Company will be able
to renew its Lines of Credit, that the Company will have access to additional
financing sources necessary to sustain its operations and its growth plans, or
that such financing will be available to the Company on favorable terms.
The Company is prohibited from paying cash dividends under its various debt
agreements.
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<PAGE> 37
BUSINESS
COMPANY OVERVIEW
The Company is a specialized consumer finance company that primarily serves
the financing needs of the rapidly growing low income Hispanic population, a
market the Company believes is underserved. The Company served this market at
March 31, 1996 through 11 locations in greater Los Angeles and one location in
San Francisco. The Company (i) purchases and services consumer finance
receivables generated by the Company's customers for purchases of high quality
brand name consumer products, appliances and furniture sold by Banner, (ii)
originates and services consumer finance receivables generated by the Company's
customers for purchases of used automobiles and airline tickets sold by the
Company, and (iii) provides other financial services to its customers such as
small loans. The Company has catered to the low income Hispanic population
during its 40 years of operation by locating its facilities primarily in
Hispanic communities, by advertising in Spanish, and by employing Spanish as the
primary language at its locations. While the Company operates primarily in
greater Los Angeles and faces substantial competition with respect to its lines
of business, the Company's objective is to become the leading provider of
consumer credit and other financial services to the low income Hispanic
population in urban areas in California and elsewhere in the United States.
The Company's customers are typically between the ages of 21 and 45, earn
less than $25,000 per year, have little or no savings, and limited or short-term
employment histories. In addition, the Company's customers typically have no
prior credit histories and are unable to secure credit from traditional lending
sources. The Company makes its credit decisions on its assessment of a
customer's ability to repay the obligation. In making a credit decision, in
addition to the size of the obligation, the Company generally considers a
customer's income level, type and length of employment, stability of residence,
personal references and prior credit history with the Company. As a result, the
Company is more susceptible to the risk that its customers will not satisfy
their repayment obligations than are less specialized consumer finance companies
or consumer finance companies that have more stringent underwriting criteria.
Demographic Trends and Market Opportunity
Since 1950, Hispanics have been the fastest growing minority group in the
United States, increasing from 4 million in 1950 to approximately 27 million in
1996, a compound annual growth rate of 4.3%, and, according to the 1996 Report,
this trend is expected to continue. The 1996 Report projects that the Hispanic
population will total 36 million by 2005. California is home to the largest
Hispanic population in the United States and this population is estimated to
grow from 9.4 million in 1995 to 13 million by 2005, at which time it will
comprise approximately 34% of California's total population. The Company
believes that, despite the current size and projected population growth of the
Hispanic population in the United States, this segment of the population will
continue to have limited access to traditional sources of credit.
The Company has identified certain metropolitan markets in which the
Company believes it can successfully introduce its financial products and
services. Specifically, the Company has determined that there exist significant
opportunities in markets having large Hispanic populations but in which such
populations account for less than 30% of such area's total population. The
Company believes that Hispanic consumers in these markets are more likely to be
underserved than Hispanics in locations in which they comprise a greater
proportion of an area's total population. In its target markets, the Company
believes it could expand through selective acquisitions or by establishing its
own financial product and service centers. The Company believes that selective
acquisitions, rather than the introduction of its own financial product and
service centers would be the most efficient method to enter markets in which
Hispanics comprise more than 30% of a metropolitan area's total population.
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The United States Hispanic population is concentrated in the following nine
states:
<TABLE>
<CAPTION>
ESTIMATED HISPANIC
POPULATION 1996
------------------
(IN MILLIONS)
<S> <C>
California.................................. 9.8
Texas....................................... 5.6
New York.................................... 2.6
Florida..................................... 2.0
Illinois.................................... 1.1
New Jersey.................................. 0.9
Arizona..................................... 0.9
New Mexico.................................. 0.7
Colorado.................................... 0.5
</TABLE>
- ---------------
Source: 1996 U.S. Hispanic Market Study performed by the Strategy Research
Corporation.
BUSINESS SEGMENTS
Installment Credit Business
The Company provides credit to low-income consumers who desire to purchase
consumer products on credit. By granting credit, the Company provides low income
consumers with an increased number of purchasing options. The Company purchases
and services consumer finance receivables generated through purchases of brand
name consumer products sold by Banner, including special order items, and
originates and services consumer finance receivables generated through purchases
of used automobiles and airline tickets.
Consumer Product Finance. The Company purchases and services consumer
finance receivables generated through purchases of brand name consumer products
sold by Banner through six stores in greater Los Angeles and one store in San
Francisco. Consumer products financed by the Company include televisions,
stereos, refrigerators, washers and dryers, ovens, freezers, furniture,
household accessories and special order items. The average net contract balance
in the Company's Consumer Product Portfolio at March 31, 1996 was $683.
Automobile Finance. In mid-1995, the Company opened its first used
automobile facility and commenced its automobile finance business at one
location adjacent to Banner's flagship installment credit store in downtown Los
Angeles, and, in April 1996, opened a second used automobile facility in greater
Los Angeles. The Company offers used automobiles for sale at prices generally
ranging from $6,500-$7,500 with financing terms of up to 42 months. The number
of vehicles sold monthly by the Company has increased from 54 during June 1995
to 150 during March 1996. From commencement of this business through March 31,
1996, the Company sold 877 vehicles for an aggregate sales price of $6.5
million, of which $5.8 million was financed. The average net contract balance in
the Company's Automobile Finance Portfolio at March 31, 1996 was approximately
$6,700.
California is the largest vehicle market in the United States. The used
vehicle market that caters to the Hispanic customer operates on a highly
fragmented and localized basis with few dealers having more than one sales
location. As part of the Company's strategy to distinguish itself from its
competitors, the Company does not negotiate the sales prices of its vehicles and
includes a twelve-month warranty with all vehicles at no extra charge. To cover
potential warranty claims, the Company establishes a reserve with respect to
each used automobile it sells. Although the Company believes it has adequately
reserved for potential warranty claims, there can be no assurance that such
reserved amounts will be sufficient to cover the costs of the Company's warranty
claims.
Travel Finance. As a complimentary business line, the Company in mid-1995
commenced its travel finance business, offering Company-financed sales of
airline tickets, primarily for travel to Mexico and Central America. At March
31, 1996, the Company was conducting this business at five of Banner's
installment credit
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<PAGE> 39
stores in greater Los Angeles and two finance centers offering small loans and
travel finance in greater Los Angeles that were opened in December 1995. The
Company believes that both its small loan and travel product lines can be
offered out of 1,000-1,500 square foot locations, and that such locations can
efficiently offer additional financial products and services which the Company
anticipates it will make available in the future. Since commencing this
business, the Company has sold and financed approximately $5.5 million of
airline tickets. The average net contract balance in the Company's Travel
Finance Portfolio at March 31, 1996 was approximately $400. See "Recent
Developments."
Unaffiliated Retailer Installment Finance. Also in mid-1995, the Company
began a program of providing financing to consumers for the purchase of products
and services sold by unaffiliated retailers. At present, the Company has
unaffiliated retailer installment financing arrangements with approximately 25
retailers in greater Los Angeles, most with one or two locations, and one with
approximately 15 locations. The Company's unaffiliated retailer installment
finance business currently represents an immaterial portion of the Company's
gross receivable portfolio. However, the Company regularly considers and
evaluates additional unaffiliated retailer installment financing arrangements.
Small Loan Business
In December 1992, the Company began offering unsecured closed-end small
loans generally ranging from $350 to $1,500 for personal, family or household
purposes at Banner's flagship installment credit store. Prior to commencing this
business, the Company determined that there was a significant demand for small
loans, and that financial institutions in its geographic market were not making
loans of less than $1,500 and did not have adequate underwriting experience to
serve the low income Hispanic population. By December 31, 1995, the Company was
originating small loans through eight facilities in greater Los Angeles, four of
which were operated at Banner's installment credit stores and four of which were
operated as finance centers offering small loans and travel finance which opened
in December 1995. See "Recent Developments."
Since inception, the small loan business has experienced significant
growth. The Company had approximately 11,000 active small loan accounts at
December 31, 1993, approximately 26,000 accounts at December 31, 1994 and
approximately 59,000 accounts at March 31, 1996. At March 31, 1996, the Company
had an outstanding net portfolio balance of $32.2 million, the average net
contract balance in the Small Loan Portfolio was $546 and the average contract
term was approximately 12 months. The Company estimates that approximately 50%
of the small loan customers at March 31, 1996 were also current installment
credit customers. Management believes that the lack of greater overlap between
small loan customers and installment credit customers presents the Company with
significant cross-selling and marketing opportunities.
Other Business Activities
The Company acts as an intermediary for an unaffiliated insurance carrier
with respect to the sale of credit life and credit accident and health insurance
to its customers and, as such, sells policies within limitations established by
agency contracts with that insurer. Credit life insurance provides for the
payment in full of the borrower's credit obligation to the lender in the event
of the borrower's death. Credit accident and health insurance provides for
repayment of loan installments to the lender during the insured's period of
involuntary unemployment resulting from disability, illness or injury. Premiums
for such credit insurance are at the maximum authorized rates and are stated
separately in the Company's disclosure to customers, as required by the
Truth-in-Lending Act and applicable state statutes. The Company does not act as
an intermediary with respect to the sale of credit insurance to non-borrowers.
The Company earns a commission from the insurance carrier on the sale of credit
insurance which is based in part on the claims experience on policies sold by
the insurance carrier through the Company. The Company recently formed a
wholly-owned subsidiary to provide similar insurance directly, which it
anticipates providing to its customers in the near future.
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<PAGE> 40
COMPANY OPERATIONS
Credit Procedures
The Company has developed uniform guidelines and procedures for evaluating
credit applications for installment credit sales and small loans. Currently, the
Company's five senior credit managers and five senior approvers have an average
of 19 years and 12 years of experience, respectively, with the Company.
Credit applications are taken at all of the Company's locations and at each
of Banner's stores and are transmitted electronically through the Company's
computer system to the Company's credit processing facility, where all credit
approval and verification is centralized. The Company believes that its
underwriting policies and procedures allow it to respond quickly to credit
requests. The Company typically responds to credit applicants within one hour.
Management believes that because of its prompt response, many customers prefer
to deal with the Company instead of its competitors.
The Company's credit managers and credit approvers make their decisions on
a case by case basis and are influenced by, among other things, whether an
applicant is a new or existing customer. New applicants complete standardized
credit applications which contain information concerning income level,
employment history, stability of residence, driver's license or state
identification card, social security number, capacity to pay and personal
references. The Company also obtains a credit bureau report and rating, if
available, and seeks to confirm various information. For an established
customer, the credit process includes a review of the customer's credit and
payment history with the Company. In instances where the applicant has no or
limited credit history, the Company may require a co-signer with appropriate
credit status to sign the contract and may, in the installment credit business,
also require a down payment. Depending on the size of the transaction and other
relevant factors, the applicant's employment and residence may also be verified
by the Company's credit verifiers. See "Risk Factors -- Credit Risk Associated
with Customers; Lack of Collateral."
The Company maintains reserves for credit losses in each of its portfolios
at levels that management believes are adequate to absorb potential losses. The
Company regularly reviews its Installment Credit Portfolio and Small Loan
Portfolio to determine the adequacy of its allowances for credit losses. Major
considerations in determining the adequacy of the allowances for credit losses
include reviewing credit loss experience, the level of delinquencies, the impact
of general economic conditions and trends, and the size of the portfolios.
Payment and Collections
Industry studies estimate that more than 25% of the adult population in the
United States does not maintain a checking account with a depository
institution, a standard prerequisite for obtaining a consumer loan, credit card
or other form of credit from most consumer credit sources. The Company's
customers are required to make their monthly payments using a payment schedule
provided to them by the Company. The vast majority of the Company's customers
make their payments in cash at the Company's locations or at the Company's
payment facilities in Banner's stores. For the Company's customers who are paid
their wages by check but who do not maintain checking accounts, the Company
cashes such checks at no charge in order to facilitate account payments.
Payments are considered past due if a borrower fails to make any payment in
full on or before its due date, as specified in the installment credit or small
loan contract signed by the customer. The Company typically contacts borrowers
whose payments are not received by the due date within 10 days after such due
date. Such contacts are made by the Company both by letter and telephone.
Thereafter, if no payment is remitted to the Company, additional contacts are
made every 7 days, and, after a loan becomes 31 days delinquent, the account is
generally turned over to the Company's credit collectors. Under the Company's
guidelines, an account is deemed uncollectible and generally is charged off at
the earlier of the time the account is 91 days past due or the account is
otherwise deemed by the Company to be uncollectible. In addition, the delinquent
account is generally turned over to either an attorney or collection agency for
further processing once it becomes 91 days past due.
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<PAGE> 41
Finance Contracts
The Company utilizes different types of financing contracts, depending on
the dollar amount of the financing and the product financed. Each of the
contracts is in Spanish and English and requires monthly financing payments.
Many of the terms, conditions and disclosures in the finance contracts are
governed by state and federal regulations. See "-- Regulation." When a
qualifying customer with an open account balance increases the amount
outstanding with an additional purchase or loan, the customer executes a new
contract for the new aggregate balance and, with the proceeds, pays off the
original contract.
Insurance
The Company maintains various insurance policies of the type, and in the
amounts, which are usual for its business. The Company maintains coverage for
business interruptions, including interruptions resulting from computer failure.
The Company believes that its insurance coverage is adequate.
Management Information Systems
Pursuant to the Operating Agreement, the Company will utilize Banner's
management information systems and be granted a license to use Banner's
management information systems' software. Banner has invested significant
resources to develop a proprietary system that integrates all major aspects of
the businesses of the Company and Banner. The computer system utilizes a
mid-range IBM AS-400 as its central server, which provides on-line, real-time
information processing services to terminals located in each of Banner's
locations and in the Company's centralized credit processing facility. The
system allows for complete processing of the Company's consumer product finance,
automobile finance, travel finance and small loan businesses, including
application processing and credit-approval, referral of credit bureau reports,
accessing the payment history of all active accounts, preparation of contracts,
payment posting, and all other collection monitoring activity. In addition, the
system provides customized reports to analyze each of the Company's portfolios
on a daily, weekly and monthly basis. The Company believes that the computer
system is sufficient to permit significant growth in each of the Company's
business lines and portfolios without the need for a material additional
investment in management information systems. Banner has adopted procedures
designed to minimize the effect of systems failures and other types of potential
problems, including routine backup and off-site storage of computer tapes, as
well as redundancy and "mirroring" of certain computer processes.
COMPETITION
The installment credit business is highly competitive. The Company, through
its relationship with Banner and other retailers, competes with those department
stores, discount stores and other retail outlets which also provide credit to
low income consumers. The largest national and regional competitors have
significantly greater resources than the Company, which competes only regionally
through 11 locations in the greater Los Angeles area and one in San Francisco.
Competition may arise from new sources having the expertise and resources to
enter the Company's markets either through expansion of operations or
acquisitions.
The small loan consumer finance industry is a highly fragmented segment of
the consumer finance industry. There are numerous small-loan consumer finance
companies operating in the United States. Many of these companies have
substantially greater resources than the Company, and the entry or expansion of
any such company within the Company's markets could have a material adverse
effect on the Company's business strategy and results of operations and
financial condition. The Company does not believe it competes with commercial
banks, savings and loans and most other consumer finance lenders, because these
institutions typically make loans greater than $1,500 with maturities greater
than one year.
REGULATION
General
As a consumer finance company, the Company is subject to extensive
regulation. Violation of statutes and regulations applicable to the Company may
result in actions for damages, claims for refunds of payments
39
<PAGE> 42
made, certain fines and penalties, injunctions against certain practices and the
potential forfeiture of rights to repayment of loans. The Company may be
affected by changes in state and federal statutes and regulations. The Company,
in conjunction with industry associations, actively participates in lobbying
efforts in the states in which it operates. Although the Company is not aware of
any pending or proposed legislation that could have a material adverse effect on
the Company's business, there can be no assurance that future regulatory changes
will not adversely affect the Company's lending practices, operations,
profitability or prospects.
State Regulation
Consumer Product and Travel Finance. The Company's consumer product
finance and Travel Finance businesses are regulated in California by the
California Retail Installment Sales Act (the "Unruh Act"). The Unruh Act
requires the Company to disclose to its customers the conditions under which the
Company may impose a finance charge, the method of determining the balance which
is subject to a finance charge, the method used to determine the amount of the
finance charge, and the minimum periodic payment required. In addition, the
Unruh Act provides consumer protection against unfair or deceptive business
practices by regulating the contents of retail installment sales contracts,
setting forth the respective rights and obligations of buyers and sellers, and
regulating the maximum legal finance rate or charge on installment credit sales.
Automobile Finance. The Rees-Levering Motor Vehicle Sales and Financing
Act (the "Rees-Levering Act") governs the Company's automobile finance business
in California. The Rees-Levering Act requires the Company to provide its
customers with information such as an itemization of the amount financed,
including items such as document preparation fees, taxes imposed on the sale,
and the amount charged for a service contract. The Rees-Levering Act also
requires that the Company's sales contracts comply with the disclosure
requirements of Federal Truth-in-Lending Regulation Z. In addition, the
Rees-Levering Act protects consumers against unfair or deceptive sales practices
by setting forth the respective rights and obligations of buyers and sellers of
motor vehicles, and regulating the maximum legal finance rate or charge for
motor vehicle sales.
Small Loan Business. Small loan consumer finance companies are subject to
extensive regulation, supervision and licensing under various federal and state
statutes, ordinances and regulations. In general, these statutes establish
maximum loan amounts and interest rates and the types and maximum amounts of
fees and other costs that may be charged. In addition, state laws regulate
collection procedures, the keeping of books and records and other aspects of the
operation of small-loan consumer finance companies. Generally, state regulations
also establish minimum capital requirements for each local office. State agency
approval generally is required to open new branch offices. Accordingly, the
ability of the Company to expand by acquiring existing offices and opening new
offices will depend in part on obtaining the necessary regulatory approvals.
Each facility that offers small loans must be separately licensed under the
laws of California. Licenses granted by the regulatory agencies are subject to
renewal every year and may be revoked for failure to comply with applicable
state and federal laws and regulations. In California, licenses may be revoked
only after an administrative hearing.
Insurance Businesses. The Company's insurance businesses are regulated in
California by the State of California Department of Insurance. In general, these
regulations require the Company to, among other things, maintain fiduciary fund
and trust accounts and follow specific market, general business and claims
practices.
Federal Regulation
The Company is subject to extensive federal regulation as well, including
the Truth-in-Lending Act, the Equal Credit Opportunity Act and the Fair Credit
Reporting Act and the regulations thereunder and the Federal Trade Commission's
Credit Practices Rule. These laws require the Company to provide complete
disclosure of the principal terms of each loan to every prospective borrower,
prohibit misleading advertising, protect against discriminatory lending
practices and proscribe unfair credit practices. Among the principal disclosure
items under the Truth-in-Lending Act are the terms of repayment, the total
finance charge and the annual rate of finance charge or "Annual Percentage Rate"
on each loan. The Equal Credit Opportunity Act
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<PAGE> 43
prohibits creditors from discriminating against loan applicants on the basis of
race, color, sex, age or marital status. Pursuant to Regulation B promulgated
under the Equal Credit Opportunity Act, creditors are required to make certain
disclosures regarding consumer rights and advise consumers whose credit
applications are not approved of the reasons for the rejection. The Fair Credit
Reporting Act requires the Company to provide certain information to consumers
whose credit applications are not approved on the basis of a report obtained
from a consumer reporting agency. The Credit Practices Rule limits the types of
property a creditor may accept as collateral to secure a consumer loan.
ADVERTISING
Banner actively advertises primarily on Hispanic television and through
direct mail, targeting both its present and former customers and potential
customers who have used other sources of consumer credit. Banner advertises
extensively during the October through December holiday season and in connection
with new store openings. The Company also advertises its other financial
products and services in cooperation with Banner and the related costs are
allocated to each of the parties. The Company believes that Banner's advertising
and its own advertising contributes significantly to its ability to compete
effectively with other providers of consumer credit.
EMPLOYEES
At March 31, 1996, the Company had 217 hourly employees and 29 salaried
employees. The Company provides life, accidental death and dismemberment,
medical, vision and dental coverage to eligible employees. None of the Company's
employees is covered by a collective bargaining agreement. The Company considers
its relations with its employees to be good.
PROPERTIES
The Company's executive and administrative offices occupy approximately
17,000 square feet of a building owned by Holdings that is located at 5480 East
Ferguson Drive, Commerce, California 90022. The Company believes that its
executive and administrative offices are adequate for current needs and that
additional space in its headquarters is available for future expansion. All of
the Company's finance centers are leased pursuant to leases that generally have
five year terms with options to renew. The Company's payment centers located in
Banner's stores are adequate for the Company's present and anticipated needs.
The Company owns an 86,000 square foot property on which it operates its
automobile sales facility in Los Angeles and leases approximately a one acre
property in greater Los Angeles on which it opened a second automobile sales
facility in April 1996.
LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings arising in the normal
course of its business. Management believes the outcome of these matters will
not have a material adverse effect on the Company.
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<PAGE> 44
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company, their ages (at April 1, 1996) and their
positions and offices with the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- ---- --------------------------------------------------
<S> <C> <C>
Gary M. Cypres......................... 52 Chairman of the Board, President and Chief
Executive Officer
Ran Birkins............................ 46 Senior Vice President of Credit and Collections
Ed Valdez.............................. 43 Senior Vice President of Credit
Russell J. Grisanti.................... 49 Senior Vice President and Chief Financial Officer
Louis Caldera.......................... 40 Director
Jose de Jesus Legaspi.................. 43 Director
</TABLE>
Messrs. Caldera and Legaspi have each consented to be elected to the Board
of Directors upon consummation of the Offering. Pursuant to the terms of the
Company's Articles of Incorporation and Bylaws, the Board of Directors consists
of three persons. Members of the Board of Directors are elected for one-year
terms expiring at the next annual meeting of shareholders and hold office until
their successors are duly elected and qualified. All officers are appointed by
and serve at the discretion of the Board of Directors.
GARY M. CYPRES has been Chairman of the Board, Chief Executive Officer and
President of the Company since its formation. Mr. Cypres has been Chairman of
the Board, Chief Executive Officer, Chief Financial Officer and President of
Holdings and Banner since February 1991, Chairman of the Board and President of
Central Rents since June 1994 and managing general partner of West Coast since
March 1990. Prior to that, Mr. Cypres was a general partner of SC Partners, a
private investment banking and consulting firm. From 1983 to 1985, Mr. Cypres
was Chief Financial Officer of The Signal Companies. From 1973 to 1983 Mr.
Cypres was Senior Vice President of Finance at Wheelabrator-Frye Inc. Mr. Cypres
was a member of the Board of Trustees and a faculty member of The Amos Tuck
School of Business at Dartmouth College.
It is contemplated that after the Offering, Mr. Cypres will spend that
portion of his business time as may be required to oversee the operations of the
Company and to direct or implement the Company's business strategies. Mr. Cypres
will continue to spend a portion of his business time as the managing general
partner of West Coast, as Chairman of the Board, Chief Executive Officer, Chief
Financial Officer and President of Holdings, as Chairman of the Board, Chief
Executive Officer, Chief Financial Officer and President of Banner, and as
Chairman of the Board and President of Central Rents. See "Risk
Factors-Concentration of Voting Control; Relationships with Holdings, Banner and
Affiliates; Conflicts of Interest."
RAN BIRKINS has been Senior Vice President of Credit and Collections of the
Company since its formation and Vice President of Credit of the Company's
consumer product finance business and small loan business since September 1994.
From November 1992 to September 1994, Mr. Birkins was Director of Credit of the
Company's small loan business. From December 1989 to September 1994, Mr. Birkins
was Director of Credit of the Company's consumer product finance business.
ED VALDEZ has been Senior Vice President of Credit of the Company since its
formation, Senior Credit Manager of the Company's consumer product finance
business since 1986 and Senior Credit Manager of the Company's small loan
business since November 1992. Mr. Valdez has been working for the Company for
over 28 years.
RUSSELL J. GRISANTI has been Senior Vice President and Chief Financial
Officer of the Company since its formation and President of the Company's
automobile business since September 1995. From September 1994 to September 1995,
Mr. Grisanti was an independent consultant to various businesses. From April
1991 to September 1994, Mr. Grisanti was President of Kars-Yes Finance Inc., a
used car finance company. From June 1983 to March 1991, Mr. Grisanti served as
President of Brookland Financial
42
<PAGE> 45
Corporation, Vice President of The Estes Co., Executive Vice President and Chief
Financial Officer of Home Federal Savings and Loan of Arizona and Chief
Financial Officer of Security Savings and Loan of Arizona.
LOUIS CALDERA has agreed to become a director of the Company upon
consummation of the Offering. Mr. Caldera has been an Assemblyman in the
California Legislature since November 1992, having been reelected in November
1994. Mr. Caldera is currently the Vice-Chair of the Assembly Banking and
Finance Committee and also serves on the Revenue and Taxation Committee, the
Environmental Safety and Toxic Materials Committee, the Higher Education
Committee, and the Select Committee on California's Health Care Safety Net. From
February 1991 to November 1992, Mr. Caldera was Deputy County Counsel for the
County of Los Angeles. Prior thereto, Mr. Caldera was an attorney in private
practice.
JOSE DE JESUS LEGASPI has agreed to become a director of the Company upon
consummation of the Offering. Since 1980, Mr. Legaspi has been a principal of
and broker at The Legaspi Company, a full service commercial real estate
brokerage firm. In addition, since 1992, Mr. Legaspi has been a principal of the
FINCA Property Management Company, a residential and commercial real estate
management company. Mr. Legaspi is also a Commissioner of the Los Angeles
Department of Water and Power.
OTHER SIGNIFICANT EMPLOYEES
ALAN E. SCHENEMAN, 44, has been Senior Vice President of the Company since
its formation. Mr. Scheneman joined the Company's consumer product finance
business in 1992 as Vice President of Management Information Services. From 1988
to 1992, Mr. Scheneman was the director of Product Development at JDA Software
Services where, in 1989, he managed the implementation of the Company's
management information system.
MARVIN A. TORRES, 33, has been President of the Company's travel finance
business since December 1995. From April 1995 to December 1995, Mr. Torres was
Vice President of Operations for the Company's travel finance business. From
1984 to 1995, Mr. Torres was Vice President of Operations and General Manager at
Solano Travel Service and Costa Rica Holiday Tours in Los Angeles, California.
ANGEL LOPEZ, 48, has been Vice President of the Company since May 1996.
From 1995 until joining the Company, Mr. Lopez was Vice President of Marketing
and Business Development at the Sacred Heart Hospital in Chicago, Illinois. From
1992 to 1995, Mr. Lopez was the Director of Ethnic Marketing for Sears
Merchandise Group in Hoffman Estates, Illinois. From 1990 to 1992, Mr. Lopez was
the General Manager for the Latin American Buying Office of Sears in Mexico
City, Mexico.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon consummation of the Offering, the Board of Directors will establish a
Compensation Committee and an Audit Committee. The Compensation Committee will
consist of at least two directors who are "disinterested persons" within the
meaning of Rule 16b-3, as amended from time to time, under the Exchange Act and
"outside directors" within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended, and will have the authority to determine compensation
for the Company's executive officers and to administer the Company's 1996 Plan
(defined below). The Audit Committee will consist of Mr. Caldera and Mr. Legaspi
and will have the authority to make recommendations concerning the engagement of
independent public accountants, review with the independent public accountants
the plans and results of the audit engagement, approve professional services
provided by the independent public accountants, review the independence of the
independent public accountants, consider the range of audit and non-audit fees
and review the adequacy of the Company's internal accounting controls.
COMPENSATION OF THE BOARD OF DIRECTORS
The Company intends to pay to its Board of Directors who are not also
employees of the Company (the "NonEmployee Directors") an annual fee of $15,000.
Members of the Board of Directors who are employees of the Company will not be
paid any Directors' fees. In addition, the Company may reimburse members of the
Board of Directors for expenses incurred in connection with their activities on
behalf of the Company. Non-
43
<PAGE> 46
Employee Directors will also each receive options to purchase 7,000 shares of
Common Stock at an exercise price of $12.00 per share, the assumed initial
public offering price of the Common Stock offered hereby, under the 1996 Plan
(defined below), effective upon the consummation of the Offering. All options
granted to the Non-Employee Directors vest in equal annual installments over 5
year periods beginning on the date of grant, subject to continued service on the
Board of Directors; however, no option can be exercised until at least six
months after the date of grant. The Company has entered into agreements with all
directors pursuant to which the Company has agreed to indemnify them against
certain claims arising out of their services as directors. Directors are also
entitled to the protection of certain indemnification provisions in the
Company's Certificate of Incorporation and Bylaws. See "Compensation Pursuant to
Plans and Arrangements -- Stock Option Plan" and "-- Indemnification
Arrangements."
EXECUTIVE COMPENSATION
The following table summarizes the compensation for the year ended December
31, 1995 of the Company's Chief Executive Officer and each of the other
executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION AWARDS
-------------------- -------------------
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS/SARS
- ---------------------------------------------------- -------- ------- -------------------
<S> <C> <C> <C>
Gary M. Cypres(2)................................... $175,000 $ -- --
Chairman of the Board,
Chief Executive Officer and President
Ran Birkins(3)...................................... 97,262 12,000 --
Senior Vice President of Credit
and Collections
Ed Valdez(4)........................................ 84,615 10,000 --
Senior Vice President of Credit
Russell J. Grisanti(5).............................. 54,788 -- --
Senior Vice President and
Chief Financial Officer
</TABLE>
- ---------------
(1) Certain of the Company's executive officers receive benefits in addition to
salary and cash bonuses. The aggregate amount of such benefits, however, do
not exceed the lesser of $50,000 or 10% of the total annual salary and bonus
of such Named Executive Officer.
(2) Mr. Cypres' compensation was paid to G.M. Cypres & Co. by Holdings for
services rendered to it.
(3) Mr. Birkins became an executive officer of the Company upon its formation.
(4) Mr. Valdez became an executive officer of the Company upon its formation.
(5) Mr. Grisanti became an executive officer of the Company upon its formation.
Mr. Grisanti joined the Company in September 1995 at an annual salary of
$180,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company will establish a Compensation Committee upon consummation of
the Offering. The Compensation Committee will consist of Mr. Caldera and Mr.
Legaspi. Prior to the establishment of the Compensation Committee, decisions
concerning the compensation of executive officers were made by Mr. Cypres, the
Company's Chairman of the Board, Chief Executive Officer and President. None of
the executive officers of the Company currently serves as a director or member
of the Compensation Committee of another entity or of any other committee of the
board of directors of another entity performing similar functions. See "The
Reorganization and Certain Relationships and Agreements among the Company,
Banner, Holdings and Other Affiliates."
44
<PAGE> 47
COMPENSATION PURSUANT TO PLANS AND ARRANGEMENTS
Set forth below is information with respect to certain benefit plans and
employment arrangements of the Company pursuant to which cash and non-cash
compensation is proposed to be paid or distributed in the future to the
directors and executive officers of the Company. Base compensation does not
include compensation pursuant to any of the plans and arrangements described
herein.
Stock Option Plan
Concurrent with the Offering, the Company will adopt the 1996 Stock Option
Plan (the "1996 Plan"). The 1996 Plan has been approved by the stockholder of
the Company. The 1996 Plan will provide that it is to be administered by a
committee of the Board of Directors (the "Option Committee") consisting of at
least two directors. The Compensation Committee is expected to function as the
Option Committee. The Option Committee has the authority, within limitations as
set forth in the 1996 Plan, to establish rules and regulations concerning the
1996 Plan, to determine the persons to whom options may be granted, the number
of shares of Common Stock to be covered by each option, and the terms and
provisions of the option to be granted. The Option Committee has the right to
cancel any outstanding options and to issue new options on such terms and upon
such conditions as may be consented to by the optionee affected.
A total of 700,000 shares are reserved for issuance under the 1996 Plan. No
individual may be granted options under the 1996 Plan with respect to more than
350,000 shares during the duration of the 1996 Plan. It is expected that options
to purchase 290,000 shares of Common Stock will be granted to eligible
participants under the 1996 Plan effective upon the closing of the Offering with
an exercise price equal to the price to the public set forth on the cover page
of this Prospectus, including to certain executive officers as set forth below.
Upon the effectiveness of these grants, 410,000 shares of Common Stock will
remain available for future grants of options under the 1996 Plan.
The number of shares which may be granted under the 1996 Plan or under any
outstanding options will be proportionately adjusted in the event of any stock
dividend or if the Common Stock shall be split, converted, exchanged,
reclassified or in any way substituted. Notwithstanding any other provision of
the 1996 Plan, in the event of a recapitalization, merger, consolidation, rights
offering, separation, reorganization or liquidation, or any other change in the
Company's corporate structure or outstanding shares, the Option Committee may
make such equitable adjustments to the number and class of shares available
under the 1996 Plan or to any outstanding options as it shall deem appropriate
to prevent dilution or enlargement of rights. The maximum term of any option
granted pursuant to the 1996 Plan is ten years. In general, shares subject to
options granted under the 1996 Plan which expire, terminate or are canceled
without having been exercised in full become available again for option grants.
The class of eligible persons under the 1996 Plan will consist of directors
and employees of, and consultants to, the Company or a parent or subsidiary
thereof, as determined by the Option Committee, except that Non-Employee
Directors can only receive fixed grants of options under the terms set forth in
the 1996 Plan. See "Compensation of the Board of Directors." Options granted
under the 1996 Plan may be incentive stock options ("ISOs") or non-qualified
options, at the discretion of the Option Committee; however, ISOs can only be
granted to employees of the Company or a parent or subsidiary. The 1996 Plan
provides that the exercise price of an option (other than a Non-Employee
Director's option) will be fixed by the Option Committee on the date of grant;
however, the exercise price of an ISO must be not less than the fair market
value of the Common Stock on the date of the grant. The exercise price of an ISO
granted to any participant who owns stock possessing more than 10% of the total
combined voting power of all classes of outstanding stock of the Company must be
at least equal to 110% of the fair market value of the Common Stock on the date
of grant. Any ISOs granted to such participants also must expire within five
years from the date of grant. Additionally, options granted under the 1996 Plan
will not be ISOs to the extent that the aggregate fair market value of the
shares with respect to which ISOs under the 1996 Plan (or under any other plan
maintained by the Company or a parent or subsidiary thereof) first become
exercisable in any year exceeds $100,000. No options shall be granted under the
1996 Plan on or after the tenth anniversary of the adoption of the 1996 Plan.
45
<PAGE> 48
Options will be non-transferable and non-assignable; provided, however,
that the estate of a deceased holder can exercise options. Options (other than
Non-Employee Directors' options) are exercisable by the holder thereof subject
to terms fixed by the Option Committee. However, no option can be exercised
until at least six months after the date of grant.
Notwithstanding the above, an option will be exercisable immediately upon
the happening of any of the following (but in no event during the six-month
period following the date of grant or subsequent to the expiration of the term
of an option): (i) the holder's retirement on or after attainment of age 65;
(ii) the holder's disability or death; (iii) a "change of control" (as defined
in the 1996 Plan) of the Company while the holder is in the employ or service of
the Company; or (iv) the occurrence of such special circumstances or events as
the Option Committee determines merits special consideration, except with
respect to Non-Employee Directors' options. Under the 1996 Plan, an option
holder generally may pay the exercise price in cash, by check, by delivery to
the Company of shares of Common Stock already owned by the holder or, except
with respect to Non-Employee Directors' options, by such other method as the
Option Committee may permit from time to time.
If an option holder terminates employment with the Company or service as a
director of or consultant to the Company while holding an unexercised option,
the option will terminate 30 days after such termination of employment or
service unless the option holder exercises the option within such 30-day period.
However, all options held by an option holder will terminate immediately if the
termination is a result of a violation of such holder's duties. If cessation of
employment or service is due to retirement on or after attainment of age 65,
disability or death, the option holder or such holder's successor-in-interest,
as the case may be, is permitted to exercise any option within three months
after retirement or within one year after disability or death.
The 1996 Plan may be terminated and may be modified or amended by the
Option Committee or the Board of Directors at any time; provided, however, that
(i) no modification or amendment either increasing the aggregate number of
shares which may be issued under options or to any individual or modifying the
requirements as to eligibility to receive options will be effective without
stockholder approval within one year of the adoption of such amendment and (ii)
no such termination, modification or amendment of the 1996 Plan will alter or
affect the terms of any then outstanding options without the consent of the
holders thereof.
The table below sets forth certain information with respect to options to
be granted under the 1996 Plan upon the closing of the Offering to all current
executive officers and proposed directors:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDER OPTIONS
NAME TO BE GRANTED
--------------------------------------------------------------------- ----------------
<S> <C>
Gary M. Cypres....................................................... 75,000
Ran Birkins.......................................................... 25,000
Ed Valdez............................................................ 30,000
Russell J. Grisanti.................................................. 20,000
Louis Caldera........................................................ 7,000
Jose de Jesus Legaspi................................................ 7,000
</TABLE>
Profit Sharing Plan
The Company participates along with other affiliated employers in Banner's,
a California Corporation dba Central Electric Profit Sharing Plan (the "Profit
Sharing Plan") which is intended to qualify under Section 401(a) of the Internal
Revenue Code. All employees of the Company who are at least 18 years of age and
who complete six months of service are eligible to participate in the Profit
Sharing Plan. The Company makes discretionary profit sharing contributions on
behalf of each participant who completes at least 1,000 hours of service during
each year and is employed on the last day of each year (except that a
participant who dies, is disabled or retires during the year shall be entitled
to such contributions, if any).
Profit sharing contributions generally vest at the rate of 20% per year
beginning with the third year of service except that such contributions vest
immediately upon a participant's reaching age 65 or the fifth
46
<PAGE> 49
anniversary of participation, whichever is later. Vested amounts credited to a
participant's account generally are not distributed to such participant until
the termination of his employment with the Company. The Profit Sharing Plan
provides for loans to participants in a manner which is uniform and
nondiscriminatory. Under the Internal Revenue Code, Company profit sharing
contributions are not taxable to the employee until such amounts are distributed
to the employee, and are tax deductible to the Company.
Supplemental Executive Retirement Plan
Concurrent with the Offering, the Company will adopt a defined benefit
Supplemental Executive Retirement Plan (the "SERP Plan") which will provide
supplemental retirement benefits to certain key management employees.
To vest in the SERP Plan, an employee must have at least 10 years of
service with the Company, including five years subsequent to the adoption of the
plan. Upon completion of the Offering, Mr. Cypres will be credited with ten
years of service with the Company and will be treated as having fulfilled his
post-adoption service on December 31, 1997 by acting as the Company's President
and Chief Executive Officer until such date. Participation in the SERP Plan will
be determined by the Board of Directors. The SERP Plan benefits are a function
of length of service with the Company and Final Average Compensation (average
monthly compensation during the 36 consecutive months of the last 60 months of
the participant's employment that produces the highest average compensation,
including salary and bonus).
Benefits are equal to a targeted percentage of Final Average Compensation
as determined by the Board of Directors upon selection of the employee to
participate in the SERP Plan. In no case will the rate exceed fifty (50%)
percent of the Final Average Compensation as of the date of the participant's
retirement or termination of employment, multiplied by the ratio of the actual
years of service as of the applicable event to the participant's years of
service projected to the participant's Normal Retirement Date (the first day of
the month after the participant attains age 60). A vested participant who
terminates employment at or after his Normal Retirement Date will receive the
full targeted percentage of his Final Average Compensation. The SERP Plan
benefit is reduced, however, by the annuity value of the participant's benefit
under the Profit Sharing Plan. Mr. Cypres will participate in the SERP Plan.
Executive Incentive Bonus Program
The Compensation Committee may grant contingent performance bonuses to
certain executive officers of the Company, including the Named Executive
Officers. The amounts of most incentive bonuses will be payable to the extent
that a recipient or the Company achieves performance goals established by the
Company's Board of Directors.
Executive Deferred Salary and Bonus Plan
Concurrent with the Offering, the Company will adopt the Executive Deferred
Salary and Bonus Plan ("EDP"), which will cover the Named Executive Officers and
certain other executives of the Company. Pursuant to the EDP, a participant may
elect to defer up to 35% of the participant's base salary and up to 100% of any
bonus awarded pursuant to the Company's Executive Incentive Bonus Program.
Elections under the EDP to defer base salary and bonus are made annually prior
to the commencement of each year. Any amounts deferred under the EDP earn
interest based upon the prime rate and are generally payable in a lump sum
within 30 days after the participant's termination of employment with the
Company for any reason. Following the completion of the Offering, the EDP will
be administrated by the Compensation Committee of the Board of Directors.
Employment Agreement
Concurrent with the Offering, the Company will enter into an employment
agreement with Mr. Cypres, and the present arrangement under which G.M. Cypres &
Co. is paid $250,000 per annum for Mr. Cypres' services will terminate. Under
the new employment agreement, Mr. Cypres will serve as the Company's Chairman of
the Board for a period of five years at a base salary of $175,000 per year and
will be eligible to
47
<PAGE> 50
participate in the Company's executive compensation plans. Mr. Cypres will also
agree to serve as the Company's President and Chief Executive Officer until
December 31, 1997. If the Company has not named a new President and Chief
Executive Officer by December 31, 1997, Mr. Cypres will continue in this
capacity for a period of up to three additional years and will receive an
adjustment of his compensation as determined by the Board of Directors. The
employment agreement also provides that Mr. Cypres will participate in the
Company's SERP Plan and be credited with eight and one-half years of service for
his contribution to the Company since the 1991 Acquisition and for entering into
the employment agreement. In addition, on December 31, 1997 Mr. Cypres will be
treated as satisfying his post-adoption service requirement under the SERP Plan.
If Mr. Cypres is terminated "for cause," which definition generally
includes termination by the Company due to the executive's willful failure to
perform his duties under the employment agreement, Mr. Cypres's personal
dishonesty or breach of his fiduciary duties or the employment agreement, then
the Company will be obligated to pay him only his base salary up to the date
upon which the Company notifies him of his termination "for cause." If Mr.
Cypres is terminated without "cause," becomes disabled or dies, then the Company
will be obligated to pay him or his estate, commencing immediately, a lump sum
payment equal to his base salary for the remaining term of the employment
agreement and to pay him under the SERP Plan as if he had worked to his Normal
Retirement Date, which the employment agreement provides is December 31, 2000.
Mr. Cypres will agree not to solicit employees of or compete with the
Company in any manner following his resignation or termination from the Company
for any period for which a lump sum has been paid by the Company in accordance
with the employment agreement, which period shall be no less than 12 months. The
Company does not have employment agreements with any other of its executive
officers or other members of management.
Indemnification Arrangements
Concurrent with the Offering, the Company will enter into Indemnification
Agreements pursuant to which it will agree to indemnify certain of its directors
and officers against judgments, claims, damages, losses and expenses incurred as
a result of the fact that any director or officer, in his capacity as such, is
made or threatened to be made a party to any suit or proceeding. Such persons
will be indemnified to the fullest extent now or hereafter permitted by the
Delaware General Corporations Law (the "DGCL"). The Indemnification Agreements
will also provide for the advancement of certain expenses to such directors and
officers in connection with any such suit or proceeding. The Company's
Certificate of Incorporation and Bylaws provide for the indemnification of the
Company's directors and officers to the fullest extent permitted by the DGCL.
See "Description of Capital Stock -- Limitation of Liability."
48
<PAGE> 51
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of April 15, 1996, and as adjusted to reflect the
sale of the shares of Common Stock offered hereby, of (i) each person known by
the Company to own beneficially five percent or more of the outstanding Common
Stock immediately prior to the Offering; (ii) each member and proposed member of
the Board of Directors; (iii) each executive officer of the Company; and (iv)
all members and proposed members of the Board of Directors and the executive
officers of the Company as a group. The address of each person listed below is
5480 East Ferguson Drive, Commerce, California 90022 unless otherwise indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING OFFERING
------------------- -------------------
NAME OF BENEFICIAL OWNERS AMOUNT PERCENT AMOUNT PERCENT
- ------------------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Banner's Central Electric, Inc.(1)..................... 5,150,000 100.0% 5,150,000 73.6%
Gary M. Cypres(2)...................................... 5,150,000 100.0% 5,150,000 73.6%
Ran Birkins............................................ -- N/A -- N/A
Ed Valdez.............................................. -- N/A -- N/A
Russell J. Grisanti.................................... -- N/A -- N/A
Louis Caldera.......................................... -- N/A -- N/A
Jose de Jesus Legaspi.................................. -- N/A -- N/A
All Directors and executive officers as a group (6
persons)............................................. 5,150,000 100.0% 5,150,000 73.6%
</TABLE>
- ---------------
(1) Banner is a wholly-owned subsidiary of Holdings. West Coast controls
Holdings. Wells Fargo & Company owns all the outstanding non-voting common
stock of Holdings. Mr. Cypres is Chairman of the Board, Chief Executive
Officer, Chief Financial Officer and President of Holdings and Banner and
the managing general partner of West Coast. Mr. Cypres controls the Company
through West Coast, Holdings and Banner. See "Risk Factors -- Concentration
of Voting Control; Potential Conflicts of Interest" and "The Reorganization
and Certain Relationships and Agreements among the Company, Banner, Holdings
and Other Affiliates."
(2) Includes the 5,150,000 shares of Common Stock owned by Banner. Mr. Cypres
disclaims beneficial ownership of these shares. Mr. Cypres is Chairman of
the Board, Chief Executive Officer, Chief Financial Officer and President of
Holdings and Banner and the managing general partner of West Coast. West
Coast controls Holdings, the sole shareholder of Banner. Mr. Cypres controls
the Company through West Coast, Holdings and Banner. See "Risk
Factors -- Concentration of Voting Control; Potential Conflicts of Interest"
and "The Reorganization and Certain Relationships and Agreements among the
Company, Banner, Holdings and Other Affiliates."
49
<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, par value $0.01 per share, and 5,000,000 shares of preferred
stock, par value $0.01 per share (the "Preferred Stock").
COMMON STOCK
At the time the Company was formed, there were 5,150,000 shares of Common
Stock outstanding which were held of record by Banner. Holders of Common Stock
are entitled to receive dividends when, as and if declared by the Board of
Directors from funds legally available therefor.
Each share of Common Stock entitles the holder thereof to one vote.
Cumulative voting for the election of directors is not permitted, which means
that the holders of the majority of shares voting for the election of directors
can elect all members of the Board of Directors. Except as otherwise required by
law, a majority vote is sufficient for any act of the stockholders. The holders
of Common Stock do not have any preemptive, subscription, redemption or
conversion rights.
Upon liquidation of the Company, subject to the rights of holders of any
Preferred Stock outstanding, the holders of Common Stock are entitled to receive
the Company's assets remaining after payment of liabilities proportionate to
their pro rata ownership of the outstanding shares of Common Stock. The holders
of Common Stock have no preemptive or conversion rights or other subscription
rights, and there are no redemption or sinking fund provisions applicable to the
Common Stock. All of the outstanding shares of Common Stock are fully paid and
nonassessable, and all of the Common Stock offered hereby, when issued, will be
fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, without further action of the
stockholders of the Company, to issue, from time to time, shares of Preferred
Stock in one or more series and with such relative rights, powers, preferences,
limitations and as the Board of Directors may determine at the time of issuance.
Such shares may be converted into Common Stock and may be superior to the Common
Stock in the payment of dividends, liquidation, voting and other rights,
preferences and privileges.
There are 5,000,000 authorized and unissued shares of Preferred Stock. The
existence of authorized but unissued Preferred Stock may enable the Board of
Directors to render more difficult or to discourage an attempt to obtain control
of the Company by means of a merger, tender offer, proxy consent or otherwise.
For example, if in the due exercise of its fiduciary obligations, the Board of
Directors were to determine that a takeover proposal is not in the Company's
best interests, the Board of Directors could cause shares of Preferred Stock to
be issued without stockholder approval in one or more private offerings or other
transactions that might dilute the voting or other rights of the proposed
acquirer or insurgent stockholder or stockholder group or create a substantial
voting block in institutional or other hands that might undertake to support the
position of the incumbent Board of Directors. In this regard, the Certificate of
Incorporation grants the Board of Directors broad power to establish the rights
and preferences of authorized and unissued Preferred Stock. The issuance of
shares of Preferred Stock pursuant to the Board of Director's authority
described above could decrease the amount of earnings and assets available for
distribution to holders of Common Stock and adversely affect the rights and
powers, including voting rights, of such holders and may have the effect of
delaying, deterring or preventing a change in control of the Company. The Board
of Directors does not currently intend to seek stockholder approval prior to any
issuance of Preferred Stock, unless otherwise required by law.
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, subject to certain exceptions,
Section 203 prohibits a Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date that such stockholder became an interested stockholder,
unless (i) prior to such date the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder, or (ii) upon consummation of the
transaction which resulted
50
<PAGE> 53
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding for purposes of
determining the number of shares outstanding those shares owned by (x) persons
who are directors and also officers and (y) employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plans will be tendered in a tender or exchange
offer), or (iii) on or subsequent to such date the business combination is
approved by the board of directors and authorized at any annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least 66-2/3% of the outstanding voting stock which is not owned by the
interested stockholder. Section 203 defines a "business combination" to include
certain mergers, consolidations, asset sales and stock issuances and certain
other transactions resulting in a financial benefit to an "interested
stockholder." In addition, Section 203 defines an "interested stockholder" to
include any entity or person beneficially owning 15% or more of the outstanding
voting stock of the corporation and any entity or person affiliated with such an
entity or person.
LIMITATION OF LIABILITY
The DGCL allows a Delaware corporation to limit a director's personal
liability for monetary damages for breaches of certain fiduciary duties owed to
the corporation and its stockholders. The Certificate of Incorporation contains
a provision that limits the liability of its directors for monetary damages for
any breach of fiduciary duty as a director to the maximum extent permitted by
the DGCL. This provision, however, does not eliminate a director's liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for a transaction
from which the director derived an improper personal benefit or (iv) in respect
of certain unlawful dividend payments or stock purchases or redemptions. The
inclusion of this provision in the Certificate of Incorporation may reduce the
likelihood of derivative litigation against directors and may discourage or
deter stockholders or management from bringing a lawsuit against directors for
breaches of their fiduciary duties, even though such an action, if successful,
might otherwise have benefitted the Company and its stockholders. This provision
does not prevent the Company or its stockholders from seeking injunctive relief
or other equitable remedies against its directors under applicable state law,
although there can be no assurance that such remedies, if sought, would be
obtained.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is U.S.
Stock Transfer Corporation.
51
<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon completion of the Offering, the Company will have outstanding
7,000,000 shares of Common Stock (7,277,000 shares of Common Stock if the
Underwriters' over-allotment option is exercised in full). The 1,850,000 shares
of Common Stock to be sold in the Offering, and any of the 277,000 shares which
may be sold upon exercise of the Underwriters' over-allotment option, will be
freely tradeable by persons other than "affiliates" of the Company, as that term
is defined in Rule 144 under the Securities Act, without restriction or
registration under the Securities Act. The remaining 5,150,000 shares (the
"Restricted Shares") will be held by Banner. The Restricted Shares may not be
sold unless they are registered under the Securities Act or sold pursuant to an
applicable exemption from registration, including an exemption pursuant to Rule
144 under the Securities Act.
As currently in effect, Rule 144 generally permits the public sale in
ordinary trading transactions of Restricted Securities and of securities owned
by "affiliates" beginning 90 days after the date of this Prospectus if the other
restrictions enumerated in Rule 144 are met. Restricted Securities are
securities acquired directly or indirectly from an issuer or an affiliate of the
issuer in action not involving a public offering. In general, under Rule 144, if
a period of at least two years has elapsed since the later of the date the
Restricted Securities were acquired from the Company or an affiliate, as
applicable, then the holder of such Restricted Securities (including an
affiliate) is entitled, subject to certain conditions, to sell within any
three-month period a number of shares which does not exceed the greater of: (i)
1% of the Company's then outstanding shares of Common Stock; or (ii) the share's
average weekly trading volume during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain manner-of-sale provisions
and requirements as to notice and the availability of current public information
about the Company. Affiliates may sell shares not constituting Restricted
Securities in accordance with the foregoing limitations and requirements but
without regard to the two-year period. However, a person who is not and has not
been an affiliate of the Company at any time during the 90 days preceding the
sale of the shares, and who has beneficially owned Restricted Securities for at
least three years, is entitled to sell such shares under Rule 144 without regard
to the volume limitations, manner-of-sale provisions and notice and public
information requirements of Rule 144. The holder of the Restricted Shares has
agreed during the 180-day period immediately following the date of this
Prospectus not to sell or otherwise dispose of any securities of the Company
without the consent of the Representative of the Underwriters.
For information concerning shares that may be issued under the Company's
stock option plans and agreements, see "Management-Stock Option Plan."
Prior to the Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that sales or the
availability of shares for sale will have on the market price prevailing from
time to time. Nevertheless, sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices.
52
<PAGE> 55
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities (the
"Representative"), have severally agreed, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase from the Company the number
of shares of Common Stock indicated below opposite their respective names, at
the initial offering price, less the underwriting discount set forth on the
cover page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent and
that the Underwriters are committed to purchase all of such shares if any are
purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------------------------------------------------------- ----------------
<S> <C>
Montgomery Securities......................................
----------------
Total............................................ 1,850,000
=============
</TABLE>
The Representative has advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow to selected dealers a
concession of not more than $ per share, and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $
per share to certain other dealers. The concession to selected dealers and the
reallowances to other dealers may be changed by the Representative and, after
the initial public offering, the offering price and other selling terms may be
changed by the Representative. The Common Stock is offered subject to receipt
and acceptance by the Underwriters and to certain other conditions, including
the right to reject an order in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of the Prospectus, to purchase up to a maximum
of 277,000 additional shares of Common Stock to cover over-allotments, if any,
at the offering price less the underwriting discount set forth on the cover page
of this Prospectus. To the extent that the Underwriters exercise this option,
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
table above. The Underwriters may purchase such shares only to cover
over-allotments made in connection with the Offering.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
The Underwriting Agreement provides that the Company and Holdings will
indemnify the Underwriters against certain liabilities, including civil
liabilities under the Securities Act, or contribute to payments the Underwriters
may be required to make in respect thereof.
The Company's executive officers, directors and shareholder have agreed
that they will not, without the prior written consent of the Representative,
directly or indirectly offer to sell, sell or otherwise dispose of any shares of
Common Stock of the Company owned by them for a period of 180 days after the
date of this Prospectus. In addition, the Company has agreed that for a period
of 180 days after the date of this Prospectus, it will not, without the prior
written consent of the Representative, directly or indirectly offer to sell,
sell, issue, distribute or otherwise dispose of any equity securities or
securities convertible into or exercisable for equity securities or any options,
rights or warrants with respect to any equity securities, except that the
Company may, without such consent, grant options and securities pursuant to
employee benefit plans described in this Prospectus.
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial offering price will be determined by
negotiations between management and the Underwriters. Among the factors
considered in such negotiations are the history of, and the prospects for, the
Company and the industry in which it competes, an assessment of management, the
Company's past and present operations, its past and
53
<PAGE> 56
present earnings and the trend of such earnings, the prospects for future
earnings of the Company, the present state of the Company's development, the
general condition of the securities market at the time of the Offering and the
market prices of publicly traded common stock of comparable companies in recent
periods.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Stroock & Stroock & Lavan, 2029 Century Park East, Los Angeles,
California. Certain legal matters will be passed upon for the Underwriters by
Manatt, Phelps & Phillips, LLP, 11355 West Olympic Boulevard, Los Angeles,
California.
EXPERTS
The consolidated financial statements as of December 31, 1994 and 1995 and
for the years ended October 31, 1993 and 1994, the two months ended December 31,
1993 and 1994, and the years ended December 31, 1994 and 1995 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and have been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement," which term shall include all amendments, exhibits, annexes and
schedules thereto) pursuant to the Securities Act, including the rules and
regulations promulgated thereunder, with respect to the shares of Common Stock
offered hereby. This Prospectus, which constitutes part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. All of these documents
may be inspected without charge at the office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies may be obtained therefrom at
prescribed rates.
54
<PAGE> 57
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT.......................................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at December 31, 1994 and 1995 and March 31, 1996
(Unaudited)...................................................................... F-3
Consolidated Statements of Income for the Years Ended October 31, 1993 and 1994, the
Two Months Ended December 31, 1993 and 1994, the Years Ended December 31, 1994
and 1995, and the Three Months Ended March 31, 1995 and 1996 (Unaudited)......... F-4
Consolidated Statements of Stockholder's Equity for the Years Ended October 31, 1993
and 1994, the Two Months Ended December 31, 1994, the Year Ended December 31,
1995, and the Three Months Ended March 31, 1996 (Unaudited)...................... F-5
Consolidated Statements of Cash Flows for the Years Ended October 31, 1993 and 1994,
the Two Months Ended December 31, 1993 and 1994, the Years Ended December 31,
1994 and 1995, and the Three Months Ended March 31, 1995 and 1996 (Unaudited).... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE> 58
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Central Financial Acceptance Corporation
Los Angeles, California:
We have audited the accompanying consolidated balance sheets of Central
Financial Acceptance Corporation and subsidiaries (the "Company", see Note 1,
Basis of Presentation) as of December 31, 1994 and 1995, and the related
consolidated statements of income, stockholder's equity, and cash flows for the
years ended October 31, 1993 and 1994, the two months ended December 31, 1993
and 1994, and the years ended December 31, 1994 and 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Central Financial
Acceptance Corporation and subsidiaries as of December 31, 1994 and 1995 and the
results of their operations and their cash flows for the years ended October 31,
1993 and 1994, the two months ended December 31, 1993 and 1994, and the years
ended December 31, 1994 and 1995 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
April 12, 1996
(June 25, 1996 as to the effects
of the reorganization described
in Notes 1 and 11)
F-2
<PAGE> 59
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1994 1995 1996
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash............................................. $ 215,000 $ 7,000 $ 133,000
Finance receivables.............................. 70,328,000 94,264,000 89,898,000
Prepaid expenses and other current assets........ 294,000 1,237,000 1,344,000
Deferred income taxes............................ 1,644,000 2,473,000 2,473,000
Property and equipment, net...................... 7,000 2,060,000 2,098,000
Intangible asset, net............................ 1,454,000 1,399,000 1,385,000
----------- ------------ -----------
TOTAL.............................................. $73,942,000 $101,440,000 $97,331,000
=========== ============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Notes payable.................................... $48,845,000 $ 63,967,000 $60,479,000
Accrued expenses and other current liabilities... 836,000 1,415,000 1,330,000
Income taxes payable............................. 310,000 1,576,000 1,140,000
Long-term debt................................... 850,000 850,000
----------- ------------ -----------
Total liabilities........................ 49,991,000 67,808,000 63,799,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Preferred stock; $0.01 par value; 5,000,000
shares authorized; no shares outstanding......
Common stock; $0.01 par value; 20,000,000 shares
authorized; 5,150,000 shares issued and
outstanding................................... 52,000 52,000 52,000
Paid-in capital.................................. 19,520,000 26,082,000 24,879,000
Retained earnings................................ 4,379,000 7,498,000 8,601,000
----------- ------------ -----------
Total stockholder's equity............... 23,951,000 33,632,000 33,532,000
----------- ------------ -----------
TOTAL.............................................. $73,942,000 $101,440,000 $97,331,000
=========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 60
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED TWO MONTHS ENDED YEARS ENDED THREE MONTHS ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
------------------------- ----------------------- ------------------------- -----------------------
1993 1994 1993 1994 1994 1995 1995 1996
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Consumer Product
Portfolio interest
income............ $ 9,010,000 $11,444,000 $1,714,000 $2,057,000 $11,787,000 $12,508,000 $2,955,000 $3,205,000
Small Loan Portfolio
interest
income............ 134,000 672,000 54,000 439,000 1,057,000 5,095,000 1,009,000 2,093,000
Automobile sales.... 4,417,000 2,038,000
Transaction fees on
contracts
purchased from
related party..... 830,000 844,000 137,000 150,000 857,000 916,000 229,000 227,000
Other income........ 1,457,000 1,756,000 304,000 416,000 1,868,000 3,653,000 654,000 1,722,000
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
Total
revenues.... 11,431,000 14,716,000 2,209,000 3,062,000 15,569,000 26,589,000 4,847,000 9,285,000
COSTS AND EXPENSES:
Operating
expenses.......... 4,519,000 5,009,000 864,000 1,025,000 5,170,000 8,150,000 1,522,000 2,504,000
Cost of automobiles
sold.............. 3,071,000 1,355,000
Provision for credit
losses............ 3,264,000 3,002,000 696,000 1,617,000 3,923,000 5,859,000 1,106,000 2,347,000
Interest expense.... 2,279,000 2,523,000 339,000 617,000 2,801,000 4,278,000 1,075,000 1,241,000
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
Total costs
and
expenses.... 10,062,000 10,534,000 1,899,000 3,259,000 11,894,000 21,358,000 3,703,000 7,447,000
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE
PROVISION (BENEFIT)
FOR INCOME TAXES.... 1,369,000 4,182,000 310,000 (197,000) 3,675,000 5,231,000 1,144,000 1,838,000
PROVISION (BENEFIT)
FOR INCOME TAXES.... 572,000 1,694,000 127,000 (74,000) 1,493,000 2,112,000 465,000 735,000
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
NET INCOME (LOSS)..... $ 797,000 $ 2,488,000 $ 183,000 $ (123,000) $ 2,182,000 $ 3,119,000 $ 679,000 $1,103,000
=========== =========== ========== ========== =========== =========== ========== ==========
UNAUDITED PRO FORMA
AND SUPPLEMENTARY
DATA (Note 1)
Pro forma net income
per share......... $ 0.61 $ 0.21
=========== ==========
Pro forma weighted
average number of
common shares
outstanding....... 5,150,000 5,150,000
=========== ==========
Supplementary net
income............ $ 4,043,000 $1,330,000
=========== ==========
Supplementary net
income per
share............. $ 0.58 $ 0.19
=========== ==========
Supplementary
weighted average
number of common
shares
outstanding....... 7,000,000 7,000,000
=========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 61
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
BALANCE, NOVEMBER 1, 1992................. $52,000 $12,130,000 $1,217,000 $13,399,000
Net income.............................. 797,000 797,000
Capital contribution.................... 2,950,000 2,950,000
------- ----------- ---------- -----------
BALANCE, OCTOBER 31, 1993................. 52,000 15,080,000 2,014,000 17,146,000
Net income.............................. 2,488,000 2,488,000
Capital withdrawal...................... (1,074,000) (1,074,000)
------- ----------- ---------- -----------
BALANCE, OCTOBER 31, 1994................. 52,000 14,006,000 4,502,000 18,560,000
Net loss................................ (123,000) (123,000)
Capital contribution.................... 5,514,000 5,514,000
------- ----------- ---------- -----------
BALANCE, DECEMBER 31, 1994................ 52,000 19,520,000 4,379,000 23,951,000
Net income.............................. 3,119,000 3,119,000
Capital contribution.................... 6,562,000 6,562,000
------- ----------- ---------- -----------
BALANCE, DECEMBER 31, 1995................ 52,000 26,082,000 7,498,000 33,632,000
Net income.............................. 1,103,000 1,103,000
Capital withdrawal...................... (1,203,000) (1,203,000)
------- ----------- ---------- -----------
BALANCE, MARCH 31, 1996 (Unaudited)....... $52,000 $24,879,000 $8,601,000 $33,532,000
======= =========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 62
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED TWO MONTHS ENDED YEARS ENDED THREE MONTHS ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
-------------------------- -------------------------- --------------------------- -------------------------
1993 1994 1993 1994 1994 1995 1995 1996
----------- ------------ ----------- ------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS
FROM
OPERATING
ACTIVITIES:
Net income
(loss).... $ 797,000 $ 2,488,000 $ 183,000 $ (123,000) $ 2,182,000 $ 3,119,000 $ 679,000 $ 1,103,000
Adjustments
to
reconcile
net income
(loss) to
net cash
provided
by
operating
activities:
Depreciation
and
amortization... 361,000 260,000 64,000 68,000 264,000 386,000 108,000 36,000
Provision
for
credit
losses... 3,264,000 3,002,000 696,000 1,617,000 3,923,000 5,859,000 1,106,000 2,347,000
Deferred
income
taxes... (276,000) 61,000 (47,000) (389,000) (281,000) (829,000)
Changes in
assets
and
liabilities:
Prepaid
expenses
and
other
current
assets... (31,000) (358,000) (513,000) (24,000) 131,000 (1,203,000) (26,000) (109,000)
Accrued
expenses
and
other
liabilities... 212,000 29,000 (96,000) 396,000 521,000 1,845,000 65,000 (521,000)
----------- ------------ ----------- ------------ ------------ ------------ ----------- -----------
Net
cash
provided
by
operating
activities... 4,327,000 5,482,000 287,000 1,545,000 6,740,000 9,177,000 1,932,000 2,856,000
----------- ------------ ----------- ------------ ------------ ------------ ----------- -----------
CASH FLOWS
FROM
INVESTING
ACTIVITIES:
Installment
contracts
(originated
and
acquired)
collected,
net....... (5,796,000) (12,038,000) (6,488,000) (15,283,000) (20,833,000) (29,795,000) 965,000 2,019,000
Capital
expenditures... (2,000) (5,000) (7,000) (2,124,000) (10,000) (58,000)
----------- ------------ ----------- ------------ ------------ ------------ ----------- -----------
Net
cash
(used
in)
provided
by
investing
activities... (5,796,000) (12,040,000) (6,488,000) (15,288,000) (20,840,000) (31,919,000) 955,000 1,961,000
----------- ------------ ----------- ------------ ------------ ------------ ----------- -----------
CASH FLOWS
FROM
FINANCING
ACTIVITIES:
Capital
contribution
(withdrawal).. 2,950,000 (1,074,000) 2,836,000 5,514,000 1,604,000 6,562,000 (4,229,000) (1,203,000)
Proceeds
from
promissory
notes
payable... 850,000
Net
(repayments
of)
proceeds
from notes
payable... (550,000) 8,587,000 2,950,000 6,558,000 12,195,000 15,122,000 1,248,000 (3,488,000)
----------- ------------ ----------- ------------ ------------ ------------ ----------- -----------
Net
cash
provided
by
(used
in)
financing
activities... 2,400,000 7,513,000 5,786,000 12,072,000 13,799,000 22,534,000 (2,981,000) (4,691,000)
----------- ------------ ----------- ------------ ------------ ------------ ----------- -----------
NET INCREASE
(DECREASE)
IN CASH..... 931,000 955,000 (415,000) (1,671,000) (301,000) (208,000) (94,000) 126,000
CASH,
BEGINNING OF
PERIOD...... 931,000 931,000 1,886,000 516,000 215,000 215,000 7,000
----------- ------------ ----------- ------------ ------------ ------------ ----------- -----------
CASH, END OF
PERIOD...... $ 931,000 $ 1,886,000 $ 516,000 $ 215,000 $ 215,000 $ 7,000 $ 121,000 $ 133,000
=========== ============ =========== ============ ============ ============ =========== ===========
SUPPLEMENTAL
DISCLOSURES
OF CASH FLOW
INFORMATION:
Interest
paid...... $ 2,162,000 $ 2,498,000 $ 437,000 $ 711,000 $ 2,772,000 $ 4,250,000 $ 1,140,000 $ 1,246,000
Income taxes
paid...... $ 848,000 $ 1,452,000 $ 89,000 $ 186,000 $ 1,549,000 $ 1,675,000 $ 218,000 $ 1,178,000
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 63
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Basis of Presentation -- Central Financial Acceptance Corporation ("CFAC")
was formed in April 1996 and is a wholly owned subsidiary of Banner's Central
Electric, Inc. Banner's Central Electric, Inc. is wholly owned by Banner
Holdings, Inc. ("Holdings") and is a consumer products retailer that provides
its customers with financing for the merchandise it sells. On June 24, 1996
CFAC, Banner's Central Electric, Inc. and Holdings entered into an agreement
(the "Reorganization Agreement") whereby Holdings contributed to Banner its
investments in certain wholly owned subsidiaries, along with the subsidiaries'
operations, (the "Holdings Subsidiaries") and Banner's Central Electric, Inc.
contributed to CFAC its investments in the Holdings Subsidiaries and the finance
portion of its consumer products business, and cash in such amount so as to
leave CFAC with $500,000 of cash on hand. Pursuant to the Reorganization
Agreement, the intercompany accounts between CFAC, Banner's Central Electric,
Inc. and Holdings that arose as a result of the Reorganization Agreement and
from other transactions, except with respect to income taxes, were forgiven and
reclassified as stockholder's equity.
In addition to the Reorganization Agreement, CFAC, Banner's Central
Electric, Inc. and Holdings entered into certain agreements for the purpose of
defining the ongoing relationships among them (see Note 11). The transactions
and agreements entered into pursuant to the Reorganization Agreement are
referred to herein as the "Reorganization." Management of CFAC believes that
such agreements provide for reasonable allocations of costs between the parties.
The Reorganization was accounted for at historical cost in a manner similar
to a pooling of interests. The accompanying consolidated financial statements
reflect the combined historical operations of CFAC and its subsidiaries as if
the Reorganization had taken place at the beginning of the periods presented,
except for the contribution of cash in such amount so as to leave CFAC with
$500,000 upon the Reorganization. CFAC and its subsidiaries, as reorganized, are
referred to herein as "Central" or the "Company." Banner's Central Electric,
Inc., including the operations of Banner's Central Electric, Inc. that remain
after contributing the finance portion of its consumer products business to
CFAC, is referred to herein as "Banner."
Unaudited pro forma net income per share is based on the number of common
shares issued by the Company pursuant to the Reorganization that are assumed to
be outstanding as of January 1, 1995. Unaudited supplementary net income per
share is based on the number of common shares issued by the Company pursuant to
the Reorganization and the number of shares to be sold by the Company in the
proposed offering, as if all such shares were outstanding as of January 1, 1995,
and also gives effect to a reduction in interest expense, net of income tax
expense, resulting from the reduction of indebtedness upon application of the
net proceeds of the proposed offering as if it had occurred on January 1, 1995.
Nature of Operations -- The Company provides unsecured small loans and
financing for the purchase of consumer products for customers in greater Los
Angeles and San Francisco, and beginning in 1995, sells and finances the
purchases of used cars and travel tickets. Substantially all of the consumer
product purchases that are financed by the Company are made by customers of
affiliated companies.
On a historical basis for the periods presented, Central's major source of
revenues has been its portfolio of installment contracts acquired from Banner.
Lesser in terms of revenues, but of growing significance, is Central's small
loan business. Beginning in 1995, Central began its used car and travel agency
businesses. Central's finance receivables portfolio comprises a high volume of
low-principal loans to customers who cannot secure credit through traditional
lending sources.
F-7
<PAGE> 64
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of Central Financial Acceptance Corporation and
its wholly owned subsidiaries, Central Installment Credit Corporation, Central
Consumer Finance Company, Central Auto Sales, Inc., Centravel, Inc., Central
Financial Acceptance/Insurance Agency and Central Premium Finance Company. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Interim Financial Data -- The interim consolidated financial data as of
March 31, 1996 and for the three months ended March 31, 1995 and 1996 is
unaudited. The information reflects all adjustments, consisting only of normal
recurring entries that, in the opinion of management, are necessary to present
fairly the financial position and results of the Company's operations for the
periods indicated. The results of operations for the interim periods are not
necessarily indicative of the results of operations for the full fiscal year.
Finance Receivables -- Central's finance receivables include installment
contracts that are purchased from Banner and unaffiliated third-party retailers
that sell the products or services (referred to herein as the "Consumer Product
Portfolio"), receivables that arise from unsecured, small loans (referred to
herein as the "Small Loan Portfolio") and installment contracts that are
originated when customers buy used cars and travel tickets (referred to herein
as the "Automobile Finance Portfolio" and the "Travel Finance Portfolio,"
respectively). Add-on interest of 11% to 13% per annum is included in the face
amount of the finance receivables together with administrative fees that are
charged on certain small loan contracts. The annual percentage rate varies
depending on the length of the contract and the amount of administrative fees.
The contracts provide for scheduled monthly payments and mature generally from 1
to 24 months in the Consumer Product Portfolio, from 1 to 12 months in the Small
Loan and Travel Finance Portfolios, and from 36 to 42 months in the Automobile
Finance Portfolio.
The Company provides an allowance for credit losses in the Consumer
Product, Automobile Finance and Travel Finance Portfolios at the time that the
contract is purchased or the retail sale is made. The allowance for credit
losses in the Small Loan Portfolio is provided for following the origination of
the loans over the period that the events giving rise to the credit losses are
estimated to occur. The Company's portfolios comprise smaller-balance,
homogeneous loans that are evaluated collectively to determine an appropriate
allowance for credit losses. The allowance for credit losses is maintained at a
level considered adequate to cover losses in the existing portfolios. Collection
of past due accounts is pursued by the Company, and when the characteristics of
an individual account indicate that collection is unlikely, the account is
charged off and turned over to a collection agency. Accounts are generally
charged off when they are 91 days past due.
Deferred insurance revenue arises from the deferral of the recognition of
revenue from certain credit insurance contracts. Insurance premium revenue is
recognized over the life of the related contract using a method that
approximates the interest method.
Property and Equipment -- Property and equipment are carried at cost.
Long-lived property is reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such an asset may not be
recoverable. If the carrying amount of the asset exceeds the estimated
undiscounted future cash flows to be generated by the asset, an impairment loss
would be recorded to reduce the asset's carrying value to it's estimated fair
value. Depreciation and amortization are computed primarily using the
straight-line method over the estimated lives of the assets, as follows:
<TABLE>
<S> <C>
Furniture, equipment and software................. Five to ten years
Leasehold improvements............................ Life of lease
Building improvements............................. 7 to 39 years
</TABLE>
Intangible Asset -- The intangible asset arose in March 1991 when the
Company acquired all of the outstanding stock of its predecessor. The excess of
the purchase price over the fair value of net assets acquired
F-8
<PAGE> 65
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
is being amortized using the straight-line method over 30 years. The
recoverability of the intangible asset is analyzed annually based on
undiscounted future cash flows. If the carrying value of the intangible asset
exceeds the estimated undiscounted future cash flows, an impairment loss would
be recorded to reduce the asset's carrying value to it's estimated fair value.
Revenues -- Interest income on the Consumer Product, Automobile Finance and
Travel Finance Portfolios is deferred and recognized over the lives of the
contracts using the "Rule of 78s," which approximates the interest method.
Interest income on the Small Loan Portfolio is deferred and recognized using the
interest method. Transaction fees on contracts purchased from a related party
are recognized using the interest method. Administrative fees are deferred and
recognized over the estimated average life of the Small Loan Portfolio using the
"Rule of 78s," which approximates the interest method. Administrative fees are
included in other income in the consolidated statements of income. Interest
income on the Automobile Finance and Travel Finance Portfolios, which began in
1995, is included in other income in the consolidated statements of income.
Travel Commissions -- Included in other income are revenues from the sale
of travel tickets. For the year ended December 31, 1995 and the three months
ended March 31, 1996 (unaudited), net travel ticket commissions totaled $371,000
and $221,000, respectively.
Income Taxes -- As of November 1, 1993, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109. The effect of adoption was not
material. For the year ended October 31, 1993, the Company computed income taxes
on the deferred method in accordance with Accounting Principles Board Opinion
No. 11. Under SFAS No. 109, income tax expense includes income taxes payable for
the current year and the change in deferred income tax assets and liabilities
for the future tax consequences of events that have been recognized in the
Company's financial statements or income tax returns. A valuation allowance is
recognized to reduce the carrying value of the deferred tax assets if it is more
likely than not that some portion or all of the deferred tax assets will not be
realized.
Fair Value of Financial Instruments -- The carrying value of the Company's
finance receivables approximates their fair value due to their short term nature
and generally stable rates of interest currently being charged in comparison to
the rates reflected in the existing portfolios. The carrying value of the
Company's notes payable approximates their fair value, as these notes represent
a series of short-term notes at floating interest rates. The carrying value of
the Company's long-term debt approximates its fair value, as the promissory note
bears interest at a floating rate.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions. Such estimates and assumptions affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
3. ACQUISITION OF RECEIVABLES PORTFOLIO
During 1994, the Company acquired the receivables portfolio of a furniture
retailer in the San Francisco area that provided installment credit for its
customers. The receivables portfolio was acquired for approximately $6,125,000.
The performance of the receivables portfolio was guaranteed by the seller. The
Company does not expect to have any continuing relationship with the seller of
this furniture retailer.
F-9
<PAGE> 66
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. FINANCE RECEIVABLES AND INTEREST INCOME
Finance receivables consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Consumer Product Portfolio......................... $67,514,000 $67,811,000 $ 63,069,000
Small Loan Portfolio............................... 16,735,000 37,868,000 35,678,000
Automobile Finance Portfolio....................... 5,545,000 7,660,000
Travel Finance Portfolio........................... 2,969,000 3,367,000
----------- ----------- ------------
84,249,000 114,193,000 109,774,000
Less deferred interest............................. 9,412,000 13,587,000 12,779,000
Less allowance for credit losses................... 3,712,000 5,365,000 6,192,000
Less deferred administrative fees and insurance
revenues......................................... 797,000 977,000 905,000
----------- ----------- ------------
$70,328,000 $94,264,000 $ 89,898,000
=========== =========== ============
</TABLE>
Customers are required to make monthly payments on installment contracts.
The aggregate gross balance of accounts with payments 31 days or more past due
are:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Customer Product Portfolio:
Past due 31-60 days.................................. $2,264,000 $1,943,000 $ 1,552,000
Past due 61 days or more............................. 2,610,000 2,465,000 2,269,000
---------- ---------- ----------
$4,874,000 $4,408,000 $ 3,821,000
========== ========== ==========
Small Loan Portfolio:
Past due 31-60 days.................................. $ 76,000 $ 500,000 $ 572,000
Past due 61 days or more............................. 105,000 649,000 799,000
---------- ---------- ----------
$ 181,000 $1,149,000 $ 1,371,000
========== ========== ==========
Automobile Finance Portfolio:
Past due 31-60 days.................................. $ 87,000 $ 114,000
Past due 61 days or more............................. 30,000 85,000
---------- ----------
$ 117,000 $ 199,000
========== ==========
Travel Finance Portfolio:
Past due 31-60 days.................................. $ 39,000 $ 54,000
Past due 61 days or more............................. 48,000 47,000
---------- ----------
$ 87,000 $ 101,000
========== ==========
</TABLE>
F-10
<PAGE> 67
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest income for the combined portfolios is as follows:
<TABLE>
<CAPTION>
YEARS ENDED TWO MONTHS ENDED YEARS ENDED THREE MONTHS ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
------------------------- ----------------------- ------------------------- -----------------------
1993 1994 1993 1994 1994 1995 1995 1996
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer Product
Portfolio........... $ 9,010,000 $11,444,000 $1,714,000 $2,057,000 $11,787,000 $12,508,000 $2,955,000 $3,205,000
Small Loan
Portfolio........... 134,000 672,000 54,000 439,000 1,057,000 5,095,000 1,009,000 2,093,000
Automobile Finance
Portfolio........... 240,000 261,000
Travel Finance
Portfolio........... 176,000 181,000
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
$ 9,144,000 $12,116,000 $1,768,000 $2,496,000 $12,844,000 $18,019,000 $3,964,000 $5,740,000
=========== =========== ========== ========== =========== =========== ========== ==========
</TABLE>
The allowance for credit losses in the Consumers Product Portfolio includes
the following:
<TABLE>
<CAPTION>
YEARS ENDED TWO MONTHS ENDED YEARS ENDED THREE MONTHS ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
------------------------- ----------------------- ------------------------- -----------------------
1993 1994 1993 1994 1994 1995 1995 1996
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allowance for credit
losses, Beginning of
period.............. $ 2,296,000 $ 2,660,000 $2,660,000 $2,565,000 $ 2,786,000 $ 3,169,000 $3,169,000 $3,711,000
Provision for credit
losses.............. 3,198,000 2,758,000 655,000 1,229,000 3,332,000 3,852,000 826,000 1,191,000
Write-offs, net of
recoveries.......... (2,834,000) (2,853,000) (529,000) (625,000) (2,949,000) (3,310,000) (679,000) (930,000)
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
Allowance for credit
losses, End of
period.............. $ 2,660,000 $ 2,565,000 $2,786,000 $3,169,000 $ 3,169,000 $ 3,711,000 $3,316,000 $3,972,000
=========== =========== ========== ========== =========== =========== ========== ==========
</TABLE>
The allowance for credit losses in the Small Loan Portfolio includes the
following:
<TABLE>
<CAPTION>
YEARS ENDED TWO MONTHS ENDED YEARS ENDED THREE MONTHS ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
------------------------- ----------------------- ------------------------- -----------------------
1993 1994 1993 1994 1994 1995 1995 1996
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allowance for credit
losses, Beginning of
period.............. $ 66,000 $ 66,000 $ 190,000 $ 107,000 $ 543,000 $ 543,000 $1,194,000
Provision for credit
losses.............. $ 66,000 244,000 41,000 388,000 591,000 1,547,000 280,000 899,000
Write-offs, net of
recoveries.......... (120,000) (35,000) (155,000) (896,000) (86,000) (487,000)
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
Allowance for credit
losses, End of
period.............. $ 66,000 $ 190,000 $ 107,000 $ 543,000 $ 543,000 $ 1,194,000 $ 737,000 $1,606,000
=========== =========== ========== ========== =========== =========== ========== ==========
</TABLE>
The allowance for credit losses in the Automobile Finance Portfolio, which
began in 1995, includes the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED 1996
DECEMBER 31, ------------------
1995
------------ (UNAUDITED)
<S> <C> <C>
Allowance for credit losses, beginning of period...... $ -- $410,000
Provision for credit losses........................... 410,000 194,000
Write-offs, net of recoveries......................... -- (60,000)
-------- --------
Allowance for credit losses, end of period............ $410,000 $544,000
======== ========
</TABLE>
F-11
<PAGE> 68
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The allowance for credit losses in the Travel Finance Portfolio, which
began in 1995, includes the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED 1996
DECEMBER 31, ------------------
1995
------------ (UNAUDITED)
<S> <C> <C>
Allowance for credit losses, beginning of period.......... $ -- $ 50,000
Provision for credit losses............................... 50,000 63,000
Write-offs, net of recoveries............................. -- (43,000)
------- --------
Allowance for credit losses, end of period................ $ 50,000 $ 70,000
======= ========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment, net consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1994 1995 1996
------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land.............................................. $ -- $1,568,000 $ 1,568,000
Improvements...................................... 146,000 154,000
Furniture, equipment and software................. 8,000 417,000 467,000
------ ---------- ----------
8,000 2,131,000 2,189,000
Less accumulated depreciation and amortization.... 1,000 71,000 91,000
------ ---------- ----------
$7,000 $2,060,000 $ 2,098,000
====== ========== ==========
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Excess of purchase price over the fair value
of net assets acquired.................... $ 1,662,000 $ 1,662,000 $ 1,662,000
Less accumulated amortization............... 208,000 263,000 277,000
----------- ----------- -----------
$ 1,454,000 $ 1,399,000 $ 1,385,000
=========== =========== ===========
</TABLE>
7. NOTES PAYABLE
Notes payable consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Bank of America line of credit.............. $38,825,000 $40,317,000 $38,529,000
Wells Fargo line of credit.................. 10,020,000 23,650,000 21,950,000
----------- ----------- -----------
$48,845,000 $63,967,000 $60,479,000
=========== =========== ===========
</TABLE>
The Company has a line of credit agreement with Bank of America National
Trust and Savings Association (the "Bank of America Line of Credit") that, as
amended, provides for the issuance of notes up to $60,000,000, subject to an
allowable borrowing base. The amounts outstanding under these notes bear
interest
F-12
<PAGE> 69
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
at rates that are determined by the type of borrowing. Borrowings under the
notes are collateralized by the Consumer Product Portfolio and Banner is a
guarantor. The Bank of America Line of Credit, as amended, matures on August 30,
1996 and contains certain restrictive covenants that prohibit the Company from
paying dividends and require, among other things, the maintenance of certain
financial ratios and amounts. The Company is required to maintain specified
levels of tangible net worth and cash flow to interest coverage ratios for one
of its subsidiaries and Banner combined, and cannot exceed a specified ratio of
debt to tangible net worth for such subsidiary and Banner combined, as such
terms are defined in the line of credit agreement. Other ratios related to the
performance of the Company's Consumer Product Portfolio must be maintained
within limits, including maximum ratios of past due accounts to eligible
contracts, net write-offs to average net receivables, and a minimum ratio of the
allowance for credit losses to net receivables, in all cases as such terms are
defined in the line of credit agreement. Borrowings under the facility bore
interest at weighted average rates of 8.21% and 7.89% per annum as of December
31, 1995 and March 31, 1996 (unaudited), respectively. The amount of unused
credit under the facility was limited by the allowable borrowing base and was
approximately $962,000 at December 31, 1995. The credit facility was fully
utilized at March 31, 1996.
The Company has a line of credit agreement with Wells Fargo Bank National
Association (the "Wells Fargo Line of Credit") that, as amended, provides for
the issuance of notes up to $30,000,000, subject to an allowable borrowing base.
The amounts outstanding under these notes bear interest at rates that are
determined by the type of borrowing. Borrowings under the notes are
collateralized by the Small Loan, Automobile Finance and Travel Finance
Portfolios. The Wells Fargo Line of Credit, as amended, expires on July 1, 1996.
The credit facility contains certain restrictive covenants that prohibit the
Company from paying dividends and require, among other things, the maintenance
of certain financial ratios and amounts. The Company is required to maintain
specified levels of tangible net worth, net income, and cash flow to interest
coverage ratios for one of its subsidiaries, and cannot exceed a specified ratio
of debt to tangible net worth for such subsidiary, as such terms are defined in
the line of credit agreement. In addition, the ratio of the net provision for
credit losses to net receivables for the Company's Small Loan, Automobile
Finance and Travel Finance Portfolios must be maintained below a specified level
as such terms are defined in the line of credit agreement. Borrowings under the
facility bore interest at weighted average rates of 8.11% and 7.71% per annum as
of December 31, 1995 and March 31, 1996 (unaudited), respectively. The amount of
unused credit under the facility was limited by the allowable borrowing base and
was approximately $4,134,000 and $5,996,000 at December 31, 1995 and March 31,
1996 (unaudited), respectively.
The Company is required to pay a commitment fee of 0.375% per annum for
unused portions of its lines of credit. These fees totaled $118,000, $88,000,
$24,000, $14,000, $78,000, $179,000, $19,000 and $54,000 for the years ended
October 31, 1993 and 1994, the two months ended December 31, 1993 and 1994, the
years ended December 31, 1994 and 1995, and the three months ended March 31,
1995 and 1996 (unaudited), respectively, and are included with operating
expenses in the consolidated statements of income.
8. LONG-TERM DEBT
Long-term debt consists of a promissory note payable to a bank that bears
interest at the bank's reference rate (8.25% at March 31, 1996 (unaudited)).
Interest is payable monthly and the principal is due July 1998. The note is
secured by a deed of trust.
9. INCOME TAXES
The Company pays federal and state income taxes as part of its parent
company's consolidated group. Income tax obligations are paid by an affiliated
company and allocated to the Company based upon separate computations of Central
and its subsidiaries' taxable income.
F-13
<PAGE> 70
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED TWO MONTHS ENDED YEARS ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31,
---------------------- -------------------- -----------------------
1993 1994 1993 1994 1994 1995
--------- ---------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Currently payable:
Federal................... $ 653,000 $1,266,000 $136,000 $ 243,000 $1,373,000 $2,289,000
State..................... 195,000 367,000 38,000 72,000 401,000 652,000
--------- ---------- -------- --------- ---------- ----------
848,000 1,633,000 174,000 315,000 1,774,000 2,941,000
--------- ---------- -------- --------- ---------- ----------
Deferred:
Federal................... (213,000) 44,000 (37,000) (301,000) (220,000) (661,000)
State..................... (63,000) 17,000 (10,000) (88,000) (61,000) (168,000)
--------- ---------- -------- --------- ---------- ----------
(276,000) 61,000 (47,000) (389,000) (281,000) (829,000)
--------- ---------- -------- --------- ---------- ----------
Provision (benefit) for
income taxes.............. $ 572,000 $1,694,000 $127,000 $ (74,000) $1,493,000 $2,112,000
========= ========== ======== ========= ========== ==========
</TABLE>
A reconciliation of the provision for income taxes to the statutory rates
is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
TWO MONTHS
YEARS ENDED ENDED YEARS ENDED ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
------------- -------------- ------------- -------------
1993 1994 1993 1994 1994 1995 1995 1996
---- ---- ---- ----- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal income taxes at statutory rates............. 34.0% 35.0% 35.0% (35.0)% 35.0% 35.0% 35.0% 35.0%
State franchise taxes, net of federal benefit....... 6.4 6.0 5.9 (5.1) 6.0 6.0 6.0 6.1
Amortization of the excess purchase price over the
fair value of assets required..................... 1.4 0.5 1.0 1.6 0.5 0.4 0.4 0.2
Other............................................... (1.0) (0.9) 0.9 (0.9) (1.0) (0.8) (1.3)
---- ---- ---- ---- ----
- - - - -
-----
41.8% 40.5% 41.0% (37.6)% 40.6% 40.4% 40.6% 40.0%
===== ===== ===== ===== ===== =====
</TABLE>
The tax effects of temporary differences giving rise to deferred income tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Allowance for credit losses............................... $1,607,000 $2,323,000
Deferred revenue.......................................... 145,000 162,000
Los Angeles Revitalization Zone credit carryforward....... 320,000 526,000
Other..................................................... (108,000) (12,000)
Valuation Allowance....................................... (320,000) (526,000)
---------- ----------
$1,644,000 $2,473,000
========== ==========
</TABLE>
The Company has available state income tax credit carryforwards that arise
from operating in the Los Angeles Revitalization Zone. A valuation allowance was
recorded to reduce the carrying value of these tax credit carryforwards to zero
because it is more likely than not that some portion of the carryforwards will
not be realized.
11. RELATED PARTY TRANSACTIONS
As discussed in Note 1, on June 24, 1996, the Company entered into the
Reorganization Agreement and certain other agreements with Banner, the
predominant source of the Company's consumer product contracts,
F-14
<PAGE> 71
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and Holdings (the "Financing Agreement," the "Option Agreement," and the
"Operating Agreement"). The accompanying consolidated financial statements have
been prepared as if such agreements and the Reorganization Agreement were in
place from 1991.
The Financing Agreement grants the Company the exclusive right to provide
financing to Banner's customers for a term of fifteen years from the date of the
Reorganization and provides that the Company will purchase the contracts from
Banner at face value less a 1.6% transaction fee, or, if the Company originates
such receivables, Banner will be obligated to pay the Company a fee of 1.6% on
each such receivable originated by the Company. The Company may terminate the
Financing Agreement at any time upon one year's prior written notice to Banner.
In the accompanying consolidated financial statements, the transaction fee was
computed based on 1.6% of the average net receivables in the Consumer Product
Portfolio, which approximates the transaction fee that would be computed based
on 1.6% of net contracts purchased from Banner recognized using the interest
method. The transaction fee totaled $830,000, $844,000 $137,000, $150,000,
$857,000, $916,000, $229,000 and $227,000 for the years ended October 31, 1993
and 1994, the two months ended December 31, 1993 and 1994, the years ended
December 31, 1994 and 1995, and the three months ended March 31, 1995 and 1996
(unaudited), respectively.
Pursuant to the Option Agreement, Holdings granted the Company an option,
exercisable for a two-year period commencing one year from the date of the
Reorganization, to acquire all of the outstanding capital stock of Banner (the
"Option") at an exercise price equal to the book value of Banner for the month
ended immediately preceding the exercise. If the Company exercises the Option,
the exercise price is payable in cash or in shares of the Company's common
stock.
The Operating Agreement provides, among other things, that Banner, Holdings
or their affiliates are obligated to provide to the Company, and the Company is
obligated to utilize, certain services, including accounting, management
information systems and employee benefits. If such services involve an
allocation of expenses, such allocation shall be made on a reasonable basis. To
the extent that such services directly relate to the finance portion of the
consumer products business contributed by Banner to the Company, or to the
extent that other costs are incurred by Banner, Holdings or their affiliates
that directly relate to the Company, the Company is obligated to pay Banner's,
Holdings' or their affiliates' actual cost of providing such services or
incurring such costs. Employee benefit expenses are allocated to the Company
based on the ratio of actual payroll expenses of employees in the consumer
products business contributed by Banner to the Company compared to total actual
payroll expenses of Banner before such allocation. Accounting expenses are
allocated 50% to the Company. The operating costs of Banner's management
information systems function are allocated initially 50% to the Company for a
period of five years, subject to adjustment from time to time to reflect
changing costs and usage. Except for management information systems services,
the Operating Agreement continues until terminated by either the Company,
Holdings or Banner upon one year's prior written notice. Termination may be made
on a service-by-service basis or in total.
12. PROFIT-SHARING PLAN
The Company participates along with other affiliated companies, in a
profit-sharing plan that covers substantially all employees who meet certain age
and length-of-service requirements. Annual contributions are contingent upon
current and accumulated profits and are at the sole discretion of the Board of
Directors. Profit-sharing expense allocated to the Company for the years ended
October 31, 1993 and 1994, the two months ended December 31, 1993 and 1994, the
years ended December 31, 1994 and 1995, and the three months ended March 31,
1995 and 1996 (unaudited) was $62,000, $53,000, $16,000, $11,000, $48,000,
$55,000, $7,000 and $11,000, respectively.
F-15
<PAGE> 72
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
The Company is allocated 50% of the cost of various computer equipment
operating leases from Banner, an affiliated company (see Note 11). These leases
expire at various times from 1997 through 2000. The Company's stand-alone loan
and travel centers are leased under noncancelable operating leases that
generally have five-year terms with options to renew.
Aggregate minimum lease commitments under the location leases and one-half
of the computer equipment minimum lease commitments of Banner are as follows:
<TABLE>
<CAPTION>
MARCH 31,
1996
YEAR ENDING DECEMBER 31, ----------
DECEMBER 31 1995
----------------------------------------------------------- ------------ (UNAUDITED)
<S> <C> <C>
1996.................................................... $ 520,000 $ 552,000
1997.................................................... 384,000 502,000
1998.................................................... 245,000 349,000
1999.................................................... 109,000 194,000
2000.................................................... 43,000 106,000
---------- ----------
$ 1,301,000 $1,703,000
========== ==========
</TABLE>
Aggregate rental expense for the years ended October 31, 1993 and 1994, the
two months ended December 31, 1993 and 1994, the years ended December 31, 1994
and 1995, and the three months ended March 31, 1995 and 1996 (unaudited) was
$240,000, $320,000, $39,000, $67,000, $348,000, $458,000, $110,000 and $191,000,
respectively.
The Company is from time to time involved in routine litigation incidental
to the conduct of its business. Management of the Company believes that
litigation currently pending will not have a material adverse effect on the
Company's financial position or results of operations.
* * * * * *
F-16
<PAGE> 73
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or the solicitation of any offer to buy any security
other than the shares of Common Stock offered by this Prospectus, nor does it
constitute an offer to sell or a solicitation of any offer to buy the shares of
Common Stock by anyone in any jurisdiction in which such offer or solicitation
is not authorized, or in which the person making such offer or solicitation is
not qualified to do so, or to any person to whom it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 9
The Reorganization and Certain
Relationships and Agreements Among
the Company, Banner, Holdings and
Other Affiliates.................... 14
Recent Developments................... 18
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Selected Financial Data............... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 35
Management............................ 42
Principal Shareholders................ 49
Description of Capital Stock.......... 50
Shares Eligible Available for Future
Sale................................ 52
Underwriting.......................... 53
Legal Matters......................... 54
Experts............................... 54
Additional Information................ 54
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
----------------------------
Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,850,000 SHARES
LOGO
FINANCIAL ACCEPTANCE
CORPORATION
------------------------
PROSPECTUS
------------------------
MONTGOMERY SECURITIES
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the Offering, all of which will
be borne by the Registrant, are as follows:
<TABLE>
<S> <C>
Registration Fee......................................................... $ 9,576.72
NASD Fee................................................................. 3,277.25
NASDAQ National Market Fee............................................... 35,000.00
Transfer Agent and Registrar Fees........................................ 5,000
Printing................................................................. 55,000.00
Legal Fees and Expenses.................................................. 335,000
Accounting Fees.......................................................... 335,000
Blue Sky Qualification Fees and Expenses................................. 15,000.00
Miscellaneous............................................................ 7,146.03
----------
Total.......................................................... $ 800,000
==========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides, in summary, that directors and officers of Delaware
corporations such as the Registrant are entitled, under certain circumstances,
to be indemnified against all expenses and liabilities (including attorneys'
fees) incurred by them as a result of suits brought against them in their
capacity as a director or officer, if they acted in good faith and in a manner
they reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful; provided, that no
indemnification may be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjusted to be liable to the
corporation, unless and only to the extent that the court in which such action
or suit was brought shall determine upon application that despite the
adjudication of liability but in view of all the circumstances of the case, they
are fairly and reasonably entitled to indemnity for such expenses which such
court shall deem proper. Any such indemnification may be made by the corporation
only as authorized in each specific case upon a determination by the
stockholders or disinterested directors that indemnification is proper because
the indemnitee has met the applicable standard of conduct. Article Eight of the
Registrant's Certificate of Incorporation and Article Six of the Registrant's
By-laws entitles officers, directors and controlling persons of the Registrant
to indemnification to the full extent permitted by Section 145 of the DGCL, as
the same may be supplemented or amended from time to time.
Article Seven of the Registrant's Certificate of Incorporation provides
that no director shall have any personal liability to the Registrant or its
stockholders for any monetary damages for breach of fiduciary duty as a
director, provided that such provision does not limit or eliminate the liability
of any director (i) for breach of such director's duty of loyalty to the
Registrant or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL (involving certain unlawful dividends or stock
repurchases) or (iv) for any transaction from which such director derived an
improper personal benefit. Amendment to such article does not affect the
liability of any director for any act or omission occurring prior to the
effective time of such amendment.
II-1
<PAGE> 75
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with Registrant's formation in April 1996 and the
reorganization transactions, as of June 24, 1996, the Registrant issued
5,150,000 shares of Common Stock to Banner's Central Electric, Inc. in reliance
upon the exemption from registration provided by Section 4(2) of the Securities
Act of 1933, as amended.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Reorganization Agreement between the Company, Banner's Central Electric, Inc. and
Banner Holdings, Inc. dated as of June 24, 1996.
3.1* Certificate of Incorporation of the Registrant.
3.2* By-laws of the Registrant.
4.1* Specimen Common Stock Certificate of the Registrant.
5.1 Opinion of Stroock & Stroock & Lavan.
10.1* 1996 Stock Option Plan dated as of June , 1996.
10.2* Indemnification Agreement between the Company and certain directors and officers of
the Company.
10.3 Employment Agreement between the Company and Gary M. Cypres dated as of June 24,
1996.
10.4 Financing Agreement between the Company, Banner's Central Electric, Inc. and Banner
Holdings, Inc. dated as of June 24, 1996.
10.5* Option Agreement between the Company, Banner's Central Electric, Inc. and Banner
Holdings, Inc. dated as of June 24, 1996.
10.6* Operating Agreement between the Company, Banner's Central Electric, Inc. and Banner
Holdings, Inc. dated as of June 24, 1996.
10.7* Tax Sharing Agreement between the Company, Banner's Central Electric, Inc. and
Banner Holdings, Inc. dated as of June 24, 1996.
10.8* Indemnification Agreement between the Company, Banner's Central Electric, Inc. and
Banner Holdings, Inc. dated as of June 24, 1996.
10.9* Indemnification Agreement dated June , 1996 between the Company and Banner
Holdings, Inc.
10.10* Credit Agreement dated as of December 14, 1993 among Banner's Central Electric
Consumer Finance Company and Wells Fargo Bank, N.A., as amended.
10.11* Credit Agreement amended and restated as of April 29, 1996 among Banner's Central
Electric, Inc. and Bank of America National Trust and Savings Association.
10.12* Central Financial Acceptance Corporation Supplemental Executive Retirement Plan
dated as of June , 1996.
10.13* Central Financial Acceptance Corporation Executive Deferred Salary and Bonus Plan
dated as of June , 1996.
10.14 Third Amended and Restated Loan Agreement dated as of June 24, 1996 among the
financial institutions named therein, Central Installment Credit Corporation, and
Banner's Central Electric, Inc.
10.15 Central Ram, Inc. Amended and Restated Security Agreement dated as of June 24, 1996
between Central Ram, Inc. and Bank of America National Trust and Savings
Association.
10.16 Central Installment Credit Corporation Security Agreement dated as of June 24, 1996
between Central Installment Credit Corporation and Bank of America National Trust
and Savings Association.
10.17 Central Ram, Inc. Continuing Guaranty dated as of June 24, 1996 in favor of Bank of
America National Trust and Savings Association.
</TABLE>
II-2
<PAGE> 76
<TABLE>
<C> <S>
10.18 Banner's Central Electric, Inc. Continuing Guaranty dated as of June 24, 1996 in
favor of Bank of America National Trust and Savings Association.
10.19 Company's Continuing Guaranty dated as of June 24, 1996 in favor of Bank of America
National Trust and Savings Association.
10.20 Stock Pledge Agreement dated as of June 24, 1996 between Company and Bank of
America National Trust and Savings Association.
10.21 Banner's Central Electric, Inc. Second Amended and Restated Security Agreement
dated as of June 24, 1996 between Banner's Central Electric, Inc. and Bank of
America National Trust and Savings Association.
10.22 Adoption Agreement for the Qualified Benefits, Inc. Regional Prototype
Non-Standardized Profit Sharing Plan and Trust effective as of November 1, 1989.
21.1* Subsidiaries of the Registrant.
23.1 Consent of Stroock & Stroock & Lavan (to be included in Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP.
23.3* Consent of Louis Caldera.
23.4* Consent of Jose de Jesus Legaspi.
23.5 Consent of Strategy Research Corporation.
24.1 Power of Attorney (included on the signature page).
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions in Item 15, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering hereof.
II-3
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in City of Commerce, State of
California, on the 20th day of June 1996.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
By: /s/ Gary M. Cypres
-------------------------------------------
Gary M. Cypres
Chief Executive Officer and President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Gary M. Cypres and Russell J. Grisanti,
or either of them, each acting alone, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for such person and
in his name, place and stead, in any and all capacities, in connection with the
Registrant's Registration Statement on Form S-1 under the Securities Act of 1993
including, without limiting the generality of the foregoing, to sign the
Registration Statement in the name and on behalf of the Registrant or on behalf
of the undersigned as a director or officer of the Registrant, and any and all
amendments or supplements to the Registration Statement, including any and all
stickers and post-effective amendments to the Registration Statement, and to
sign any and all additional registration statements relating to the same
offering of securities as the Registration Statement that are filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and any applicable securities exchange or
securities self-regulatory body, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes or substitute, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------- --------------
<C> <S> <C>
/s/ GARY M. CYPRES Chairman of the Board of Directors, June 20, 1996
- ------------------------------------------ Chief Executive Officer and
Gary M. Cypres President (Principal Executive
Officer)
/s/ RUSSELL J. GRISANTI Senior Vice President and Chief June 20, 1996
- ------------------------------------------ Financial Officer (Principal
Russell J. Grisanti Financial and Accounting Officer)
</TABLE>
II-4
<PAGE> 78
REGISTRATION NO. 333-3790
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CENTRAL FINANCIAL ACCEPTANCE
CORPORATION
---------------------------
EXHIBITS
TO
AMENDMENT NO. 3
TO
FORM S-1
---------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 79
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 * Form of Underwriting Agreement........................................
2.1 Reorganization Agreement between the Company, Banner's Central
Electric, Inc. and Banner Holdings, Inc. dated as of June 24, 1996....
3.1 * Certificate of Incorporation of the Registrant........................
3.2 * By-laws of the Registrant.............................................
4.1 * Specimen Common Stock Certificate of the Registrant...................
5.1 Opinion of Stroock & Stroock & Lavan..................................
10.1 * 1996 Stock Option Plan dated as of June , 1996......................
10.2 * Indemnification Agreement between the Company and certain directors
and officers of the Company...........................................
10.3 Employment Agreement between the Company and Gary M. Cypres dated as
of June 24, 1996......................................................
10.4 Financing Agreement between the Company, Banner's Central Electric,
Inc. and Banner Holdings, Inc. dated as of June 24, 1996..............
10.5 * Option Agreement between the Company, Banner's Central Electric, Inc.
and Banner Holdings, Inc. dated as of June 24, 1996...................
10.6 * Operating Agreement between the Company, Banner's Central Electric,
Inc. and Banner Holdings, Inc. dated as of June 24, 1996..............
10.7 * Tax Sharing Agreement between the Company, Banner's Central Electric,
Inc. and Banner Holdings, Inc. dated as of June 24, 1996..............
10.8 * Indemnification Agreement between the Company, Banner's Central
Electric, Inc. and Banner Holdings, Inc. dated as of June 24, 1996....
10.9 * Indemnification Agreement dated June , 1996 between the Company and
Banner Holdings, Inc..................................................
10.10 * Credit Agreement dated as of December 14, 1993 among Banner's Central
Electric Consumer Finance Company and Wells Fargo Bank, N.A., as
amended...............................................................
10.11 * Credit Agreement amended and restated as of April 29, 1996 among
Banner's Central Electric, Inc. and Bank of America National Trust and
Savings Association. .................................................
10.12 * Central Financial Acceptance Corporation Supplemental Executive
Retirement Plan dated as of June , 1996.............................
10.13 * Central Financial Acceptance Corporation Executive Deferred Salary and
Bonus Plan dated as of June , 1996..................................
10.14 Third Amended and Restated Loan Agreement dated as of June 24, 1996
among the financial institutions named therein, Central Installment
Credit Corporation, and Banner's Central Electric, Inc................
10.15 Central Ram, Inc. Amended and Restated Security Agreement dated as of
June 24, 1996 between Central Ram, Inc. and Bank of America National
Trust and Savings Association.........................................
10.16 Central Installment Credit Corporation Security Agreement dated as of
June 24, 1996 between Central Installment Credit Corporation and Bank
of America National Trust and Savings Association.....................
10.17 Central Ram, Inc. Continuing Guaranty dated as of June 24, 1996 in
favor of Bank of America National Trust and Savings Association.......
10.18 Banner's Central Electric, Inc. Continuing Guaranty dated as of June
24, 1996 in favor of Bank of America National Trust and Savings
Association...........................................................
</TABLE>
<PAGE> 80
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------- ------------
<C> <S> <C>
10.19 Company's Continuing Guaranty dated as of June 24, 1996 in favor of
Bank of America National Trust and Savings Association................
10.20 Stock Pledge Agreement dated as of June 24, 1996 between Company and
Bank of America National Trust and Savings Association................
10.21 Banner's Central Electric, Inc. Second Amended and Restated Security
Agreement dated as of June 24, 1996 between Banner's Central Electric,
Inc. and Bank of America National Trust and Savings Association.......
10.22 Adoption Agreement for the Qualified Benefits, Inc. Regional Prototype
Non-Standardized Profit Sharing Plan and Trust effective as of
November 1, 1989......................................................
21.1 * Subsidiaries of the Registrant........................................
23.1 Consent of Stroock & Stroock & Lavan (to be included in Exhibit
5.1)..................................................................
23.2 Consent of Deloitte & Touche LLP......................................
23.3 * Consent of Louis Caldera..............................................
23.4 * Consent of Jose de Jesus Legaspi......................................
23.5 Consent of Strategy Research Corporation..............................
24.1 Power of Attorney (included on the signature page)....................
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 2.1
REORGANIZATION AGREEMENT
This REORGANIZATION AGREEMENT (the "Agreement") is dated as of June 24,
1996 among CENTRAL FINANCIAL ACCEPTANCE CORPORATION, a Delaware corporation
("Central"), BANNER'S CENTRAL ELECTRIC, INC., a California corporation
("Banner"), and BANNER HOLDINGS, INC., a Delaware corporation ("Holdings").
WHEREAS, Holdings owns (i) 100 shares of common stock, par value $1.00
per share, of Central Consumer Finance Company, a Delaware corporation; (ii) 100
shares of common stock, no par value per share, of Central Auto Sales, Inc., a
California corporation; (iii) 100 shares of common stock, no par value per
share, of Centravel, Inc., a California corporation; (iv) 1,000 shares of common
stock, no par value per share, of Central Financial Acceptance/Insurance Agency,
a California corporation; (v) 5,000 shares of common stock, no par value per
share, of Central Premium Finance Company, a California corporation; (vi) 1,000
shares of common stock, no par value per share, of BCE Properties, Inc., a
California corporation; and (vii) two ordinary shares, par value $1.00 per
share, of Central International, Ltd., a Turks and Caicos corporation, which
shares constitute all of the outstanding capital stock of such subsidiaries
(collectively, the "Holdings Subsidiaries," and, with respect to the shares
thereof, the "Holdings Shares");
WHEREAS, Banner owns 100 shares of common stock, no par value per
share, of Central Installment Credit Corporation, a California corporation,
which shares constitute all of the outstanding capital stock of such subsidiary
("CICC," and, with respect to the shares of CICC, the "CICC Shares," and,
collectively with the Holdings Shares, the "Shares");
WHEREAS, Holdings desires to contribute to Banner its investments in
the Holdings Subsidiaries;
WHEREAS, Banner desires to contribute to Central, in exchange for
5,149,900 shares of common stock, par value $0.01 per share (the "Central
Shares"), its investments in each of the Holdings
<PAGE> 2
Subsidiaries and CICC (collectively, "the Subsidiaries"), and cash in such
amount so as to leave Central, on a basis consolidated with its subsidiaries,
with cash on hand at the opening of business on the date hereof of $500,000,
(the "Reorganization");
WHEREAS, concurrently herewith, Central, Banner and Holdings have
entered into various additional agreements for the purpose of defining the
ongoing relationship among the parties following the Reorganization.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the parties agree as follows:
1. Contribution from Holdings to Banner. Holdings hereby contributes to
Banner, and Banner hereby accepts from Holdings, the Holdings Shares.
2. Contributions from Banner to Central.
(a) Contribution of Subsidiaries and Assets to Central. Banner hereby
contributes and transfers to Central, and Central hereby accepts from Banner,
Banner's investments in the Subsidiaries and cash in such amount so as to leave
Central, on a basis consolidated with its subsidiaries, with cash on hand at the
opening of business on the date hereof in the amount of $500,000. In addition,
Holdings, Banner and Central, on behalf of themselves and the Subsidiaries,
hereby cancel all intercompany accounts and related obligations, except those
accounts and obligations with respect to income taxes, which accounts and
obligations shall remain in full force and effect.
3. Representations and Warranties of Holdings. Holdings represents and
warrants to Banner as follows:
(a) Title to Holdings Shares. The Holdings Shares have been duly
authorized and validly issued, are fully paid and non-assessable and are owned
of record, beneficially and directly by Holdings free and clear of any security
interests, liens, encumbrances, equities or claims. Upon delivery of the stock
certificates representing the Holdings Shares to Banner, valid and
-2-
<PAGE> 3
marketable title to the Holdings Shares will pass free and clear of any security
interests, liens, encumbrances, equities or claims.
(b) Good Standing. Each of the Holdings Subsidiaries is a corporation
duly organized, validly existing and in good standing under its jurisdiction of
incorporation, has full power and authority to own, lease and operate its
properties and assets and to conduct its business as now being conducted, and is
duly qualified or licensed to do business as a foreign corporation, and is in
good standing, in all jurisdictions where the character of the properties it
owns, leases or operates, or the conduct of its business, requires such
qualification or licensing.
(c) Permits. Holdings and each of the Holdings Subsidiaries holds all
permits, licenses and franchises necessary for or material to the current use,
occupancy or operation of their respective businesses; and no notice of
violation of any applicable permit, license or franchise or other similar law
binding on Holdings or any of the Holdings Subsidiaries with respect to their
respective businesses has been received.
(d) Governmental Authorizations. No governmental authorization,
approval, order, license, permit, franchise, or consent and no registration,
declaration or filing by Holdings or any of the Holdings Subsidiaries with any
governmental authority is required in connection with the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby,
except for notice of change of ownership required to be filed by (i) Central
Financial Acceptance/Insurance Agency with the California Department of
Insurance and (ii) Central Premium Finance Company with the California
Department of Corporations.
(e) Due Authorization. Holdings has full legal right, power and
authority, and all approvals required by law, to enter into this Agreement, to
sell, assign, transfer and deliver the Holdings Shares in the manner provided in
this Agreement and to perform all of its obligations hereunder. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action. This Agreement constitutes the legal, valid and binding
obligation of Holdings enforceable in accordance with its terms.
-3-
<PAGE> 4
4. Representations and Warranties of Banner. Banner represents and
warrants to Central as follows:
(a) Title to Shares. The Shares have been duly authorized and validly
issued, are fully paid and non-assessable and are owned of record, beneficially
and directly by Banner free and clear of any security interests, liens,
encumbrances, equities or claims. Upon delivery of the stock certificates
representing the Shares to Central, valid and marketable title to the Shares
will pass free and clear of any security interests, liens, encumbrances,
equities or claims.
(b) Good Standing. Each of the Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has full power and authority to own, lease and
operate its properties and assets and to conduct its business as now being
conducted, and is duly qualified or licensed to do business as a foreign
corporation, and is in good standing, in all jurisdictions where the character
of the properties it owns, leases or operates, or the conduct of its business,
requires such qualification or licensing.
(c) Permits. Banner and each of the Subsidiaries holds all permits,
licenses and franchises necessary for or material to the current use, occupancy
or operation of their respective businesses; and no notice of violation of any
applicable permit, license or franchise or other similar law binding on Banner
or any of the Subsidiaries with respect to their respective businesses has been
received.
(d) Governmental Authorizations. No governmental authorization,
approval, order, license, permit, franchise, or consent and no registration,
declaration or filing by Banner or any of the Subsidiaries with any governmental
authority is required in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
(e) Due Authorization. Banner has full legal right, power and
authority, and all approvals required by law, to enter into this Agreement, to
sell, assign, transfer and deliver the Shares in the manner provided in this
Agreement and to perform all of its obligations hereunder. The execution,
delivery and performance of
-4-
<PAGE> 5
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action. This Agreement
constitutes the legal, valid and binding obligation of Banner enforceable in
accordance with its terms.
5. Representations and Warranties of Central. Central represents and
warrants to each of Holdings and Banner as follows:
(a) Issuance of Central Shares. The Central Shares, when issued and
delivered in accordance with this Agreement, will be duly and validly issued and
outstanding, fully paid and nonassessable, and will not have been issued in
violation of or subject to any preemptive rights.
(b) Due Authorization. Central has full legal right, power and
authority, and all approvals required by law, to enter into this Agreement and
to perform all of its obligations hereunder. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action.
This Agreement constitutes the legal, valid and binding obligation of Central
enforceable in accordance with its terms.
6. Deliveries of Holdings. Concurrently with the execution of this
Agreement, Holdings is delivering to Banner the stock certificates representing
the Holdings Shares, duly endorsed in blank or accompanied by proper instruments
of transfer duly signed by Holdings and accompanied by necessary transfer tax
stamps or funds therefor.
7. Deliveries of Banner. Concurrently with the execution of this
Agreement, Banner is delivering to Central (i) the stock certificates
representing the Shares, duly endorsed in blank or accompanied by proper
instruments of transfer duly signed by Banner and accompanied by necessary
transfer tax stamps or funds therefor and (ii) cash in such amount so as to
leave Central, on a basis consolidated with its subsidiaries, with cash on hand
in the amount of $500,000 at the opening of business on the date hereof.
8. Deliveries of Central. Concurrently with the execution of this
Agreement, Central is delivering to Banner the stock
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<PAGE> 6
certificates representing the Central Shares as full consideration for the
Shares.
9. Further Assurances. Each of Holdings and Banner agrees at any time
and from time to time, upon the request of Central, to do, execute, acknowledge
and deliver, or to cause to be done, executed, acknowledged and delivered, all
such further acts, assignments, transfers, powers of attorney and assurances as
may be required for the better assigning, transferring, conveying, and
confirming to Central, or to its successors and assigns, of any or all of the
Shares and to carry out the terms and conditions of this Agreement.
10. Survival of Representations and Warranties. The representations and
warranties contained herein shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and
remain in full force and effect, notwithstanding any investigation at any time
made by or on behalf of the parties.
11. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement may not be assigned or delegated by any party
without the consent of the other parties.
12. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given at the time when mailed
in any general or branch office of the United States Postal Service, enclosed in
a registered or certified postpaid envelope, or sent by Federal Express or other
similar overnight courier service, addressed to 5480 East Ferguson Drive,
Commerce, California 90022 or to such changed address as such party may have
fixed by notice or, if given by telecopier, when such telecopy is transmitted
and the appropriate answerback is received.
13. Governing Law. This Agreement shall be governed by the laws of the
State of California without giving effect to the principles of conflicts of law.
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14. Entire Agreement. This Agreement sets forth the entire agreement
among the parties with respect to its subject matter. This Agreement may not be
amended or otherwise modified except in writing duly executed by all of the
parties. No waiver of any provision or breach of this Agreement shall be
effective unless such waiver is in writing and signed by the party against which
enforcement of such waiver is sought. A waiver by any party of any breach or
violation of this Agreement shall not be deemed or construed as a waiver of any
subsequent breach or violation thereof.
15. Severability. Should any part, term or condition hereof be declared
illegal or unenforceable or in conflict with any other law, the validity of the
remaining portions or provisions of this Agreement shall not be affected
thereby, and the illegal or unenforceable portions of the Agreement shall be and
hereby are redrafted to conform with applicable law, while leaving the remaining
portions of this Agreement intact.
16. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same document.
17. Headings. Section headings are for convenience only and do not
control or affect the meaning or interpretation of any terms or provisions of
this Agreement.
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<PAGE> 8
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first above written.
CENTRAL FINANCIAL ACCEPTANCE
CORPORATION
By______________________________
Gary M. Cypres
Chief Executive Officer and
President
BANNER'S CENTRAL ELECTRIC, INC.
By______________________________
Gary M. Cypres
Chief Executive Officer and
President
BANNER HOLDINGS, INC.
By______________________________
Gary M. Cypres
Chief Executive Officer and
President
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<PAGE> 1
Exhibit 5.1
June 25, 1996
Central Financial Acceptance
Corporation
5480 East Ferguson Drive
Commerce, CA 90022
Ladies and Gentlemen:
We have acted as counsel to Central Financial Acceptance Corporation, a
Delaware corporation (the "Company"), in connection with the preparation and
filing with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), of a Registration Statement on
Form S-1 (Registration No. 333-3790) (the "Registration Statement") relating to
the proposed public offering (the "Offering") of 1,850,000 shares (the "Initial
Shares") of the Company's Common Stock, $.01 par value (the "Common Stock"),
and up to an additional 277,000 shares of Common Stock (together with the
Initial Shares, the "Shares") which may be sold in the event the underwriters
for the Offering elect to exercise their over-allotment option.
As such counsel, we have examined copies of the Certificate of Incorporation
and Bylaws of the Company, each as amended to the date hereof, the Registration
Statement, and originals or copies of such other corporate minutes, records,
agreements and other instruments of the Company, certificates of public
officials and other documents and have made such examinations of law, as we
<PAGE> 2
Central Financial Acceptance Corporation
June 25, 1996
Page 2
have deemed necessary to form the basis for the opinion hereinafter expressed.
In our examination of such materials, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to the original documents of all copies submitted to us. As to
various questions of fact material to such opinion, we have relied, to the
extent we deemed appropriate, upon representations, statements and certificates
of officers and representatives of the Company and others.
Attorneys involved in the preparation of this opinion are admitted to practice
law in the State of California and we do not purport to be experts on, or to
express any opinion herein concerning, any law other than the Delaware General
Corporation Law.
Based upon and subject to the foregoing, we are of the opinion that the Shares,
when issued and sold under the circumstances contemplated in the Registration
Statement, will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this firm under the caption
"Legal Matters" in the Prospectus which forms a part of the Registration
Statement. In giving such consent, we do not admit hereby that we come within
the category of persons whose consent is required under Section 7 of the Act or
the Rules and Regulations of the Commission thereunder.
Very truly yours,
STROOCK & STROOCK & LAVAN
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 24th day of June, 1996, by and between
Central Financial Acceptance Corporation, a Delaware corporation with its
principal offices at 5480 East Ferguson Drive, Commerce, California 90022 (the
"Corporation"), and Gary M. Cypres (the "Executive").
W I T N E S S E T H :
In consideration of the mutual covenants contained herein, the
parties hereto agree as follow:
1. Term. The Corporation hereby employs the Executive as the
Chairman of the Board of the Corporation, and the Executive agrees to serve the
Corporation as such, upon the terms and conditions hereof for a period of five
years commencing on the date hereof. The Executive also agrees to serve as the
President and Chief Executive Officer of the Corporation for a period commencing
on the date hereof and ending on December 31, 1997, unless Executive's
employment under the Agreement is otherwise terminated in accordance with the
provisions hereof. If the Corporation has not named a new President and Chief
Executive Officer to serve commencing no later than January 1, 1998, the
Executive will continue in such capacities for a period of up to three
additional years, and will receive an adjustment to his compensation as
determined by the Board of Directors.
2. Duties.
(a) Executive shall serve as the Chairman of the Board,
President, and Chief Executive Officer of the Corporation, with such duties and
authority as are generally incident to such positions, or shall serve in such
other senior management positions as the Corporation shall determine, provided
that such other positions shall be comparable in authority and responsibility to
the positions specified above. The Executive will hold such senior offices
and/or directorships in the Corporation and/or its subsidiaries or affiliates to
which he may be elected or appointed from time to time, provided that such
offices shall not be inconsistent with his duties and authority as aforesaid.
<PAGE> 2
(b) The Executive agrees that he will devote substantially all of
his time and attention to the affairs of the Corporation, and will use his best
efforts to promote the business and interests of the Corporation. The Executive
further agrees that he will not engage, either directly or indirectly, in any
other business or occupation during the term of employment hereunder. It is
understood, however, that the foregoing will not prohibit the Executive from
engaging in or conducting business, either directly or indirectly, with respect
to Banner Central Electric, Inc., Banner Holdings, Inc., West Coast Private
Equity Partners, L.P., Central Rents Holdings, Inc., Central Rents, Inc., and/or
any of their subsidiaries or affiliates. It is further understood that the terms
of this Agreement will not prohibit the Executive from engaging in personal
investment activities for himself and his family which do not interfere with the
performance of his duties hereunder.
3. Compensation. The Corporation will pay the Executive a salary of
$175,000 per annum, payable in equal installments in accordance with customary
payroll practices for senior executives of the Corporation, in consideration for
all services to be rendered by the Executive hereunder (including, without
limitation, all services to be rendered by him as an officer and/or director of
the Corporation and/or its subsidiaries and affiliates).
The Company may also pay the Executive an annual bonus with respect
to each fiscal year of the Corporation, either on an "ad hoc" basis, or pursuant
to any bonus plan or arrangement for senior executives of the Corporation as may
be established at the Corporation's discretion. However, nothing contained
herein shall obligate the Corporation to pay any bonus to the Executive, it
being understood that the payment of any such bonus shall be in the sole
discretion of the Board of Directors, and that the amount thereof, if any, may
vary depending on actual performance of the Corporation and/or the Executive, as
determined by the Board.
Nothing contained herein shall prohibit the Board of Directors of
the Corporation, in its sole discretion, from increasing the compensation
payable to the Executive pursuant to this Agreement and/or making available to
the Executive other benefits in addition to those benefits which the Executive
is entitled to hereunder.
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<PAGE> 3
4. Expenses. The Executive shall be entitled to reimbursement by the
Corporation, in accordance with the Corporation's policies then applicable to
senior executives at the Executive's level, against appropriate vouchers or
other receipts for authorized travel, entertainment and other business expenses
reasonably incurred by him in the performance of his duties hereunder.
5. Executive Benefits.
(a) General Benefits. The Executive shall be entitled to
participate in, and receive benefits under, any pension, profit sharing,
insurance, hospitalization, medical, disability, stock purchase, stock option,
stock ownership, vacation or other employee benefit plan, program or policy of
the Corporation which may be in effect at any time during the course of his
employment by the Corporation, and which shall be generally available to senior
executives of the Corporation occupying positions of comparable status or
responsibility, subject to the terms of such plans, programs or policies.
Notwithstanding the foregoing, the Corporation may in its discretion and at any
time, change or revoke any of its employee benefits plans, programs or policies,
and the Executive shall not be deemed, by virtue of this Agreement, to have any
vested interest in any such plans, programs or policies, except as otherwise
provided herein. The Corporation shall also provide the Executive, at the
Corporation's expense, with an automobile reasonably appropriate to the
Executive's position, as determined by the Corporation, for use by the Executive
in connection with the performance of his duties hereunder.
(b) SERP Plan Benefits. The Executive shall participate in the
Corporation's Supplemental Executive Retirement Plan (the "SERP Plan"), and is
hereby credited through the date of this Agreement with eight and one/half years
of service for his contributions since current management acquired the
operations of Banner Central Electric, Inc. in May 1991. Subject only to his
continued employment with the Corporation through December 31, 1997, and in
consideration for agreeing to act as the Corporation's President and Chief
Executive Officer until December 31, 1997, on such date the Executive shall be
fully vested in the SERP Plan (including credit for five Post-Effective Date
Years of Service, as such term is defined in the SERP Plan) and his Normal
Retirement Date for all purposes shall be deemed to be December 31, 2000. If
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<PAGE> 4
the Executive is terminated without "cause", as defined in Paragraph 8 below,
becomes disabled, or dies at any time after the date hereof, then the
Corporation will commence immediately to pay the Executive or his estate under
the SERP Plan a benefit equal to his full vested interest (including credit for
five Post-Effective Date Years of Service) as if he had worked to his Normal
Retirement Date (the first day of the month after the Executive attains age 60).
Thus, by way of example of the above contained provisions, if Executive retires
on December 31, 2000, the numerator of the fraction referred to in the
definition of Accrued Benefits in Section 2(a) of the SERP Plan shall be 13 and
the denominator shall be 13. Further, for purposes of the definition of Final
Average Compensation in Section 2(j) of the SERP Plan, if the Executive's Final
Average Compensation must be calculated before December 31, 1997, his Final
Average Compensation shall be the higher of (I) as determined pursuant to the
SERP Plan and the provisions of this Agreement and (ii) $175,000. To the extent
of any inconsistency between this Agreement and the SERP Plan, the terms of this
Agreement shall prevail.
6. Withholding. All payments required to be made by the Corporation
to the Executive hereunder shall be subject to the withholding of such amounts
relating to taxes and other governmental assessments as the Corporation may
reasonably determine it is obligated to withhold pursuant to any applicable law,
rule or regulation.
7. Death; Permanent Disability. This Agreement shall terminate upon
the death of the Executive during the term of this Agreement, except as
otherwise provided herein. If the Executive fails to perform the services
required hereunder during the term of this Agreement because of illness or other
incapacity for any consecutive period of more than 180 days, or for shorter
periods aggregating more than 180 days in any consecutive twelve-month period
(any such illness or incapacity being hereinafter referred to as "permanent
disability"), then the Corporation, in its discretion, may at any time
thereafter terminate this Agreement upon not less than 10 days' written notice
thereof to the Executive, and this Agreement shall terminate and come to an end
upon the date set forth in said notice as if said date were the termination date
of this Agreement; provided, however, that such termination shall not become
effective if, prior to the date when such notice is given, the Executive's
illness or incapacity shall end and he shall be physically and mentally able to
perform the
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<PAGE> 5
services required hereunder, and shall have taken up and begun performing such
duties.
If the Executive's employment shall be terminated by reason of his
death or permanent disability, the Corporation shall be obligated to pay the
Executive or his estate, commencing immediately, (i) a lump sum payment equal to
the Executive's base salary for the remaining term of this Agreement (ii) a pro
rata portion of any annual bonus which the Executive would otherwise have been
entitled to receive pursuant to any bonus plan or arrangement for senior
executives of the Corporation (such pro rata portion to be payable at the time
such annual bonus would otherwise have been payable to the Executive) and (iii)
subject to the terms thereof, any benefits which may be due to the Executive on
the date of termination by reason of death or disability under the provisions of
this Agreement, or any employee benefit plan, program, or policy.
8. Termination.
(a) Termination For Cause. The Corporation may at any time during
the term of this Agreement terminate the employment of the Executive for cause.
Termination for cause shall be by written notice which specifies the cause for
termination, and termination of employment shall be immediately effective upon
the Corporation giving the Executive such notice. For purposes of this
Agreement, "cause" shall mean (I) any willful misconduct of the Executive in
connection with the performance of any of his duties hereunder, including
without limitation misappropriation of funds or property of the Corporation,
securing or attempting to secure personally any profit in connection with any
transaction entered into on behalf of the Corporation or any willful and
intentional act having the effect of injuring the reputation, business or
business relationships of the Corporation; (ii) willful failure, neglect, or
refusal to perform the Executive's duties hereunder; (iii) breach of any
material covenants contained in this Agreement; or (iv) conviction (or nolo
contendere plea) in connection with any felony or misdemeanor involving moral
turpitude. If the Executive is terminated for cause, the Corporation will be
obligated to pay the Executive (i) only his base salary up to the date upon
which the Corporation notifies him of his termination for cause, and (ii)
subject to the terms thereof, any benefits which may be due to the Executive
under the provisions of this Agreement, or any employee benefit plan, program,
or policy. The Executive hereby disclaims any right to receive a pro rata
portion of any annual bonus with
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<PAGE> 6
respect to the fiscal year in which such termination for cause occurs.
(b) Termination Without Cause. If the Executive is terminated
without cause, becomes disabled or dies, then the Corporation will be obligated
to pay him or his estate, commencing immediately, a lump sum payment equal to
his base salary for the remaining term of this Agreement, in addition to any
other compensation and/or benefits herein provided.
9. Insurance. The Executive agrees that the Corporation may insure
the life of the Executive in such amounts as the Corporation may in its
discretion determine, and may designate the Corporation as the beneficiary under
any such policy or policies. The Executive agrees that he will submit to a
physical examination upon the Corporation's request, and will execute any
applications or other documents as may be required to procure such life
insurance.
10. Non-Competition; Solicitation.
(a) The Executive agrees that during his employment with the
Corporation and for any period following his resignation or termination which
period is greater than 12 months and for which the Executive has been paid a
lump sum by the Corporation in accordance with this Agreement, he shall not,
without the written consent of the Corporation and except as otherwise provided
herein, directly or indirectly, either individually or as an employee, agent,
partner, shareholder, consultant, option holder, lender of money, guarantor or
in any other capacity, participate in, engage in or have a financial interest or
management position or other interest in any business, firm, corporation or
other entity if it competes directly with any business operation conducted by
the Corporation or its subsidiaries or affiliates or any successor or assign
thereof, nor will he solicit any other person to engage in any of the foregoing
activities. Participation in the management of any business operation other than
in connection with the management of a business operation which is in direct
competition with the Corporation or its subsidiaries or affiliates or any
successor or assign thereof shall not be deemed to be a breach of this Section
10(a). The foregoing provisions of this Section 10(a) shall not prohibit the
ownership by the Executive (as the result of open market purchase) of 1% or less
of any class of capital stock of a corporation which is regularly traded on a
national securities exchange or over-the-counter on the NASDAQ System.
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<PAGE> 7
(b) The Executive further agrees that at any time during his
employment with the Corporation and for any period following his resignation or
termination which period is greater than 12 months and for which the Executive
has been paid a lump sum by the Corporation in accordance with this Agreement,
he shall not solicit (or assist or encourage the solicitation of) any employee
of the Corporation or any of its subsidiaries or affiliates to work for
Executive or for any business, firm, corporation or other entity in which the
Executive, directly or indirectly, in any capacity described in Section 10(a)
hereof, participates or engages (or expects to participate or engage) or has (or
expects to have) a financial interest or management position.
(c) If any covenant contained in this Section 10, or any part
thereof, is held by a court of competent jurisdiction to be unenforceable
because of the duration of such provision, the activity limited by such
provision, or the subject and/or area covered by such provision, then the court
making such determination shall construe such restriction so as to thereafter
limit or reduce the scope or duration of such provision or part thereof to be
valid and enforceable to the greatest extent permissible under applicable law.
11. Trade Secrets, Etc. The Executive agrees that he shall not,
during or after the termination of this Agreement, divulge, furnish or make
accessible to any person, firm, corporation or other business entity, any
information, trade secrets, technical data or know-how relating to the business,
business practices, methods, products, processes, equipment, clients' prices or
other confidential or secret aspect of the business of the Corporation and/or
any subsidiary or affiliate, except as may be required in good faith in the
course of his employment with the Corporation or by law, without the prior
written consent of the Corporation, unless such information shall become public
knowledge (other than by reason of Executive's breach of the provisions hereof).
12. Acceptance by Executive. The Executive accepts all of the terms
and provisions of this Agreement and agrees to perform all of the covenants on
his part to be performed hereunder.
13. Equitable Remedies. The Executive acknowledges that he has been
employed for his unique talents and that his leaving the employ of the
Corporation would seriously hamper the business of the Corporation and that the
Corporation will suffer
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<PAGE> 8
irreparable damage if any provisions of Sections 10 or 11 hereof are not
performed strictly in accordance with their terms or are otherwise breached. The
Executive hereby expressly agrees that the Corporation shall be entitled as a
matter of right to injunctive or other equitable relief, in addition to all
other remedies permitted by law, to prevent a breach or violation by the
Executive and to secure enforcement of the provisions of Sections 10 or 11
hereof. Resort to such equitable relief, however, shall not constitute a waiver
or any other rights or remedies which the Corporation may have.
14. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto and there are no other terms other than
those contained herein. No variation hereof shall be deemed valid unless in
writing and signed by the parties hereto, and no discharge of the terms hereof
shall be deemed valid unless by full performance of the parties hereto or by a
writing signed by the parties hereto. No waiver by the Corporation or any breach
by the Executive of any provision or condition of this Agreement to be performed
by him shall be deemed a waiver of a breach of a similar or dissimilar provision
or condition at the same time or any prior or subsequent time.
15. Severability. The validity and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired in the
event that any provision in this Agreement shall be declared invalid, illegal or
unenforceable by any court of competent jurisdiction.
16. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be deemed to have
been given at the time when mailed in the United States enclosed in a registered
or certified post-paid envelope, return receipt requested, and addressed to the
appropriate parties at the address stated below, or to such changed addresses as
such parties may designate by notice;
Correspondence to: 5480 East Ferguson Drive
Commerce, California 90022
provided, however, that any notice of change of address shall be effective only
upon receipt.
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<PAGE> 9
17. Successors and Assigns. This Agreement is personal in its nature
and neither of the parties hereto shall, without the consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder (except
for an assignment or transfer by the Corporation to a successor as contemplated
by the following proviso); provided, however, that the provisions hereof shall
inure to the benefit of, and be binding upon, any successor of the Corporation,
whether by merger, consolidation, transfer of all or substantially all of the
assets of the Corporation, or otherwise, and upon the Executive, his heirs,
executors, administrators and legal representatives.
18. Governing Law. This Agreement and its validity, construction and
performance shall be governed in all respects by the internal laws of the State
of California without giving effect to any principles of conflict of laws.
19. Headings. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have hereunder set their
hands and seals the day and year first above written.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
By: ____________________________________
Gary M. Cypres, President and CEO
____________________________________
Executive
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<PAGE> 1
EXHIBIT 10.4
FINANCING AGREEMENT
This FINANCING AGREEMENT (the "Agreement") is dated as of June 24, 1996
among CENTRAL INSTALLMENT CREDIT CORPORATION, a California corporation
("Central") and a wholly-owned subsidiary of Central Financial Acceptance
Corporation ("CFAC"), BANNER'S CENTRAL ELECTRIC, INC., a California corporation
("BCE"), Central Ram, Inc., a Delaware corporation ("Ram" and with BCE
collectively referred to as "Banner") and BANNER HOLDINGS, INC., a Delaware
corporation ("Holdings").
WHEREAS, concurrently herewith, CFAC, BCE and Holdings have entered
into a Reorganization Agreement dated as of the date hereof pursuant to which
CFAC is acquiring the capital stock of certain subsidiaries of BCE and Holdings
(the "Reorganization");
WHEREAS, as an integral part of the Reorganization, Banner desires to
grant Central the exclusive right to purchase consumer finance receivables
("Consumer Finance Receivables") generated by sales at Banner stores, whether
now in existence or hereafter opened (the "Banner Stores").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the parties agree as follows:
1. Exclusive Right to Purchase Consumer Finance Receivables.
(a) Exclusive Right. Banner hereby grants to Central the exclusive
right, at Banner's option, (i) to purchase, without recourse, Consumer Finance
Receivables originated by Banner for sales at Banner Stores, or (ii) to provide
financing directly to Banner's customers for sales of merchandise at Banner
Stores. Banner agrees that, so long as Banner originates Consumer Finance
Receivables, it will not offer any consumer credit except on such terms,
conditions and according to such underwriting criteria as may be directed by
Central from time to time, and, if Central shall originate Consumer Finance
Receivables directly to Banner's customers, Banner agrees that it will not offer
any consumer credit without the prior written consent of Central.
<PAGE> 2
(b) Transaction Fees. As long as Banner shall originate Consumer
Finance Receivables, Central shall have the right to purchase such receivables
at their net amount (i.e., the amount of the gross receivable balance less
deferred interest and any deferred charges), less a 1.6% transaction fee, or, if
Central shall originate such receivables, Banner shall pay Central a transaction
fee equal to 1.6% of the face value of such Consumer Finance Receivable.
(c) Floor Space. In consideration of CFAC's provision of products and
financial services, including check cashing, travel, insurance agency services
and small loans at certain Banner locations, Banner agrees to provide Central at
no charge, such amount of space at Banner Stores as Central may from time to
time reasonably request.
2. Term. This Agreement shall be in effect for a period of 15 years
from the date hereof, subject to termination by Central upon one year's prior
written notice.
3. Representations and Warranties of Banner. Banner represents,
warrants and agrees as follows:
(a) All forms of installment sales contracts and promissory notes
presently in use or proposed for use by Banner (collectively, the "Installment
Contract Forms"), comply with all applicable laws, including, without
limitation, all applicable consumer finance laws.
(b) Banner has the full capacity, right, power and authority to enter
into this Agreement and any related agreements to which it is a party. The
execution, delivery and performance of this Agreement by Banner and the
execution, delivery and performance of any related agreements or contemplated
transactions by Banner will not violate, or constitute a breach or default
(whether upon lapse of time and/or the occurrence of any act or event or
otherwise) under, the articles of incorporation or bylaws of Banner, or any
material contract of Banner, or violate any laws or regulations. No permits or
approvals are required to be obtained by Banner to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
Banner and the performance of this Agreement and any related or contemplated
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<PAGE> 3
transactions by Banner will not require filing or registration with, or the
issuance of any permit by, any other third party or governmental entity.
(c) Banner holds all material permits that are required by any
governmental entity to permit it to conduct its business as now conducted. To
the best knowledge of Banner no suspension, cancellation or termination of any
of such permits is threatened or imminent.
(d) Banner is organized and has conducted its business in accordance
with applicable laws in all material respects including the California Retail
Installment Credit Act, and the forms, procedures and practices of Banner
including, its installment credit business are in compliance with all such laws,
to the extent applicable, in all material respects.
4. Independent Parties. The parties are independent parties engaged in
the operation of their respective businesses. No party has the authority to
enter into contracts or assume any obligations for any other party or is to be
considered as the agent or employee of any other party for any purpose
whatsoever. Nothing in this Agreement shall be construed to establish a
relationship of partners or joint venturers among the parties.
5. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement may not be assigned or delegated by any party
without the consent of the other parties.
6. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given at the time when mailed
in any general or branch office of the United States Postal Service, enclosed in
a registered or certified postpaid envelope, or sent by Federal Express or other
similar overnight courier service, addressed to the appropriate party at 5480
East Ferguson Drive, Commerce, California 90022, Attention: Secretary, or to
such changed address as such party may have fixed by notice or, if given by
telecopier, when such telecopy is transmitted and the appropriate answer back
-3-
<PAGE> 4
is received.
7. Governing Law. This Agreement shall be governed by the laws of the
State of California without giving effect to the principles of conflicts of law.
8. Entire Agreement. This Agreement sets forth the entire agreement
among the parties with respect to its subject matter. This Agreement may not be
amended or otherwise modified except in writing duly executed by all of the
parties. No waiver of any provision or breach of this Agreement shall be
effective unless such waiver is in writing and signed by the party against which
enforcement of such waiver is sought. A waiver by any party of any breach or
violation of this Agreement shall not be deemed or construed as a waiver of any
subsequent breach or violation thereof.
9. Severability. Should any part, term or condition hereof be declared
illegal or unenforceable or in conflict with any other law, the validity of the
remaining portions or provisions of this Agreement shall not be affected
thereby, and the illegal or unenforceable portions of the Agreement shall be and
hereby are redrafted to conform with applicable law, while leaving the remaining
portions of this Agreement intact.
10. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same document.
11. Headings. Section headings are for convenience only and do not
control or affect the meaning or interpretation of any terms or provisions of
this Agreement.
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<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CENTRAL INSTALLMENT CREDIT
CORPORATION
By_____________________________
Gary M. Cypres
Chief Executive Officer and
President
BANNER'S CENTRAL ELECTRIC, INC.
By_____________________________
Gary M. Cypres
Chief Executive Officer and
President
CENTRAL RAM, INC.
By_____________________________
Gary M. Cypres
Chief Executive Officer and
President
BANNER HOLDINGS, INC.
By_____________________________
Gary M. Cypres
Chief Executive Officer and
President
<PAGE> 1
Exhibit 10.14
================================================================================
THIRD AMENDED AND RESTATED LOAN AGREEMENT
Dated as of June 24, 1996
among
CENTRAL INSTALLMENT CREDIT CORPORATION, as Borrower
and
BANNER'S CENTRAL ELECTRIC, INC., as a Guarantor
and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent
and
THE FINANCIAL INSTITUTIONS THAT ARE SIGNATORIES HERETO, as Banks
$60,000,000
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
DEFINITIONS AND CONSTRUCTION................ 1
1.1 Definitions.......................................................... 1
1.2 Construction......................................................... 29
1.3 Accounting Terms..................................................... 29
1.4 Disclosure Statement................................................. 30
ARTICLE II
AMOUNT AND TERMS OF LOANS................. 30
2.1 Revolving Credit Facility............................................ 30
2.2 Letters of Credit.................................................... 31
2.3 Authorization and Issuance of the Notes.............................. 34
2.4 Rate Designation..................................................... 34
2.5 Interest Rates; Payment of Principal and Interest.................... 34
2.6 Default Rate......................................................... 36
2.7 Computation of Interest and Fees..................................... 36
2.8 Request for Borrowing................................................ 36
2.9 Conversion or Continuation........................................... 38
2.10 Loans by Banks....................................................... 40
2.11 Termination or Reduction of Commitment............................... 41
2.12 Voluntary Prepayments................................................ 41
2.13 Fees................................................................. 41
2.14 Replacement of Banks................................................. 42
2.15 Eurodollar Costs..................................................... 42
2.16 Special Eurodollar Circumstances..................................... 44
2.17 Taxes................................................................ 45
2.18 Increased Capital Cost............................................... 46
2.19 Funding Sources...................................................... 47
2.20 Holidays............................................................. 47
2.21 Place of Borrowings.................................................. 47
2.22 Time and Place of Payments........................................... 47
2.23 Survivability........................................................ 48
ARTICLE III
CONDITIONS TO LOANS.................... 48
3.1 Conditions Precedent to Initial Loans................................ 48
3.2 Conditions Precedent to All Loans.................................... 51
3.3 Determinations Under Section 3.1..................................... 52
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF OBLIGOR......................... 52
4.1 Due Organization; Subsidiaries....................................... 52
4.2 Capital Stock or Interests of Obligor................................ 52
4.3 Requisite Power and Authorization.................................... 53
4.4 Binding Agreements................................................... 53
4.5 Other Agreements..................................................... 53
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.6 Litigation; Adverse Facts............................................ 54
4.7 Government Consents.................................................. 54
4.8 Financial Condition.................................................. 55
4.9 Title to Assets; Liens............................................... 56
4.10 Tax Examination...................................................... 56
4.11 Payment of Taxes..................................................... 56
4.12 Governmental Regulation.............................................. 57
4.13 Securities Activities................................................ 57
4.14 Employee Benefit Plans............................................... 57
4.15 Disclosure........................................................... 58
4.16 Indebtedness......................................................... 59
4.17 Licenses, Patents, Trademarks, and Intellectual
Property............................................................. 59
4.18 Burdensome Agreements................................................ 60
4.19 Existing Defaults.................................................... 60
4.20 Contract Warranties.................................................. 60
4.21 Compliance with Consumer Finance Laws................................ 60
4.22 Leases............................................................... 60
4.23 Fire, Explosion, and Labor Disputes.................................. 60
4.24 Location of Chief Executive Office................................... 61
4.25 No Partnerships...................................................... 61
4.26 Employment Agreements and Relations.................................. 61
4.27 Environmental Matters................................................ 61
4.28 Solvency............................................................. 61
4.29 No Default........................................................... 61
4.30 Representations and Warranties Relating to Central
Ram.................................................................. 61
ARTICLE V
AFFIRMATIVE COVENANTS OF OBLIGOR.............. 63
5.1 Accounting Records and Inspection.................................... 63
5.2 Financial Statements and Other Information........................... 63
5.3 Corporate Existence.................................................. 70
5.4 Payment of Taxes and Claims.......................................... 70
5.5 Maintenance of Properties............................................ 70
5.6 Insurance............................................................ 70
5.7 Compliance with Laws................................................. 71
5.8 Compliance with ERISA................................................ 71
5.9 Consumer Finance Regulations......................................... 71
5.10 Further Assurances................................................... 72
5.11 Compliance by Central Ram............................................ 72
5.12 Intercompany Services................................................ 73
5.13 Collection and Disbursement Procedures............................... 73
ARTICLE VI
NEGATIVE COVENANTS OF OBLIGOR............... 73
6.1 Indebtedness......................................................... 73
6.2 Liens................................................................ 75
6.3 Investments.......................................................... 75
6.4 Accommodation Obligations............................................ 75
6.5 Dividends............................................................ 76
6.6 Financial Covenants.................................................. 76
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
6.7 Restriction on Fundamental Changes.................................. 79
6.8 Sales and Lease-Backs............................................... 79
6.9 Sale of Assets...................................................... 80
6.10 Transactions with Shareholders and Affiliates....................... 81
6.11 Conduct of Business................................................. 82
6.12 Issuance of Preferred Stock......................................... 82
6.13 Prepayment of Indebtedness.......................................... 83
6.14 Use of Proceeds..................................................... 83
6.15 ERISA............................................................... 83
6.16 Misrepresentations.................................................. 84
6.17 Change in Location of Chief Executive Office and
Assets.............................................................. 84
6.18 Warehouse Receipts.................................................. 84
6.19 Margin Regulation................................................... 84
6.20 Amendments or Waivers of Certain Documents.......................... 84
6.21 Amendment of Rewrite Policy......................................... 84
6.22 Change of Fiscal Periods............................................ 84
6.23 Compliance by Central Ram........................................... 85
6.24 Negative Pledge by CFAC............................................. 85
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES.............. 85
7.1 Events of Default................................................... 85
7.2 Remedies............................................................ 90
ARTICLE VIII
THE AGENT AND THE BANKS................. 91
8.1 Appointment and Powers of Agent..................................... 91
8.2 Agent's Reliance.................................................... 91
8.3 Defaults............................................................ 92
8.4 Rights as a Bank.................................................... 92
8.5 Indemnification..................................................... 93
8.6 Non-Reliance by Banks............................................... 93
8.7 Failure to Act...................................................... 94
8.8 Excess Payments..................................................... 94
8.9 Obligations Several................................................. 94
8.10 Resignation by or Removal of Agent.................................. 94
8.11 Intercreditor Agreements............................................ 95
ARTICLE IX
BANKS' REPRESENTATIONS.................. 95
9.1 Investment Representation........................................... 95
9.2 Assignment of Interest in Notes; Compliance with Law................ 95
9.3 Confidentiality..................................................... 96
ARTICLE X
EXPENSES AND INDEMNITIES................. 96
10.1 Expenses............................................................ 96
10.2 Indemnity........................................................... 97
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE XI
MISCELLANEOUS....................... 98
11.1 No Waivers; Remedies................................................. 98
11.2 Waivers and Amendments............................................... 98
11.3 Changes in Accounting Principles..................................... 99
11.4 Confirmation......................................................... 99
11.5 Notices.............................................................. 100
11.6 Transfers of Notes................................................... 100
11.7 Availability of Funds................................................ 100
11.8 Successors and Assigns............................................... 101
11.9 Headings............................................................. 103
11.10 Execution in Counterparts; Effectiveness............................. 103
11.11 GOVERNING LAW........................................................ 104
11.12 Arbitration.......................................................... 104
11.13 Severability of Provisions........................................... 106
11.14 Survival of Agreements, Representations, and
Warranties........................................................... 106
11.15 Setoff............................................................... 106
11.16 Independence of Covenants............................................ 107
11.17 Complete Agreement................................................... 107
11.18 Relationship to Prior Loan Agreement................................. 107
11.19 Increase in Commitment............................................... 107
</TABLE>
iv
<PAGE> 6
EXHIBITS AND SCHEDULES TO LOAN AGREEMENT
Exhibits
A-1 Assignment and Acceptance
B-1 Borrowing Base Certificate
C-1 Pro Rata Share of the Commitment of Each Bank
N-1 Note
N-2 Notice of Borrowing
N-3 Notice of Conversion/Continuation
O-1 Officer's Compliance Certificate
S-1 Supplemental Signature Page
3.1(w) Certificate Regarding California Commercial Code Section 9102(5)-(7)
11.5 Notice Information
Schedules
A-1 List of Ancillary Documents
D-1 Disclosure Statement
v
<PAGE> 7
THIRD AMENDED AND RESTATED LOAN AGREEMENT
THIS THIRD AMENDED AND RESTATED LOAN AGREEMENT, dated as of June 24,
1996, is entered into among CENTRAL INSTALLMENT CREDIT CORPORATION, a California
corporation ("Borrower"), BANNER'S CENTRAL ELECTRIC, INC., a California
corporation ("BCE"), the financial institutions that either now or in the future
are signatories hereto (collectively referred to as "Banks" and individually as
a "Bank"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent
(hereinafter, in such capacity, together with any successors thereto in such
capacity, referred to as "Agent") for Banks hereunder. This Agreement is made
with reference to that certain Second Amended and Restated Loan Agreement dated
as of April 29, 1996, among BCE, Banks, and Agent (herein the "Prior Loan
Agreement"). Concurrently herewith in connection with the Restructuring
Transactions, Borrower is assuming all of the obligations of BCE under and in
respect of the Prior Loan Agreement and the other Prior Loan Documents,
including the "Secured Indebtedness" as defined in the Prior Loan Agreement (the
"Prior Loan Obligations"), which Prior Loan Obligations have become direct
obligations of Borrower by virtue of such assumption. Subject to and as provided
in Section 11.18 hereof, this Agreement amends and restates in its entirety the
Prior Loan Agreement; provided, however, that Section 10.2 of the Prior Loan
Agreement shall not be terminated or superseded hereby. All Prior Loan
Obligations outstanding as of the Closing Date automatically shall become
obligations of Borrower hereunder, guaranteed by the Guarantors, as if new Loans
were made or new Letters of Credit issued on the Closing Date; provided,
however, that all outstanding Loans made and Letters of Credit issued under the
Prior Loan Agreement in fact shall remain outstanding hereunder and shall not be
deemed to have been repaid, cancelled, or reissued merely because of the
amendment and restatement provided for herein.
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 Definitions. For purposes of this Agreement, the following initially
capitalized terms shall have the following meanings:
"Accommodation Obligation" shall mean, as applied to any Person
and without duplication of amounts, any obligation of such Person
guaranteeing or intended to guarantee (whether guaranteed, endorsed,
co-made, discounted, or sold with recourse to such Person) any
indebtedness, lease, dividend, letter of credit, or other obligation
("primary obligation") of any other Person ("primary obligor") in any
manner, whether directly or indirectly, including any obligation of
such Person (irrespective of whether contingent) (a) to
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<PAGE> 8
purchase any such primary obligation or any Asset constituting direct
or indirect security therefor, (b) to advance or supply funds (whether
in the form of a loan, advance, stock purchase, capital contribution,
or otherwise) (i) for the purchase, repurchase, or payment of any such
primary obligation or any Asset constituting direct or indirect
security therefor, or (ii) to maintain working capital or equity
capital of the primary obligor, or to otherwise maintain the net worth,
solvency, or other financial condition of the primary obligor, (c) to
purchase or make payment for any Asset, security, service, or lease if
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of
such primary obligation, or (d) to otherwise assure or hold harmless
the owner of such primary obligation against loss in respect thereof;
provided, however, that the term "Accommodation Obligation" shall not
include (i) endorsements of instruments for deposit or collection in
the ordinary course of such Person's business, or (ii) indemnities
arising in the ordinary course of business, including indemnities
arising in connection with the sale or other disposition of a Person's
Assets or in connection with the incurrence of Indebtedness. The amount
of any Accommodation Obligation shall be deemed to be an amount equal
to the maximum amount of a Person's liability with respect to the
stated or determinable amount of the primary obligation for which such
Accommodation Obligation is incurred, or, if not stated or
determinable, the maximum reasonably anticipated liability in respect
thereof (assuming such Person is required to perform thereunder) as
determined by Agent.
"Account Debtor" shall mean the Person or Persons obligated on a
Contract.
"Affiliate" shall mean, as applied to any Person, any other
Person directly or indirectly controlling, controlled by, or under
common control with, that Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as
applied to any Person, means the possession, directly or indirectly, of
the power to direct or cause the direction of the management or
policies of that Person, whether through the ownership of voting
securities, by contract, or otherwise.
"Agent" shall have the meaning ascribed to such term in the
introduction to this Agreement. Where appropriate according to the
context, Agent also refers to Agent acting as Collateral Agent.
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<PAGE> 9
"Agreement" shall mean this Third Amended and Restated Loan
Agreement among Obligor, Agent, and Banks, together with all exhibits
and schedules hereto, as amended, restated, supplemented, or otherwise
modified from time to time.
"Ancillary Documents" shall mean: (a) the documents listed on
Schedule A-1 attached hereto; (b) any other documents, agreements, or
instruments, including any Hedge Agreement but excluding this Agreement
and the Notes, setting forth contractual obligations of Obligor or any
Affiliate of Obligor in favor of Agent or any Bank, at any time
executed and delivered by Obligor or any Affiliate of Obligor in
connection with the transactions contemplated by this Agreement; and
(c) any amendments, restatements, supplements or other modifications of
any of the foregoing.
"Anniversary Date" shall mean any date that is an annual
anniversary of the Signing Date, or, if such date is not a Domestic
Business Day, the next succeeding Domestic Business Day.
"Applicable Basic Rate Margin" shall mean 0.875% per annum.
"Applicable Eurodollar Rate Margin" shall mean 2.375% per annum.
"Applicable Percentage" shall mean the percentage applicable to
the Net Unpaid Balances of Eligible Contracts for purposes of
determining a portion of the Borrowing Base as determined by Agent
based on its determination of the Dilution Percentage after conducting
a periodic audit. If Agent determines that the Dilution Percentage is
12.5% or less, the Applicable Percentage shall be 75%. For every
percentage point (or portion thereof) by which the Dilution Percentage
exceeds 12.5%, the Applicable Percentage shall be reduced by a
percentage point. By way of illustration, set forth below are six (6)
levels of Applicable Percentages:
<TABLE>
<CAPTION>
Dilution Applicable
Percentage Percentage
---------- ----------
<S> <C>
12.5% or less 75%
Greater than 12.5%
to and including 13.5% 74%
Greater than 13.5%
to and including 14.5% 73%
</TABLE>
- 3 -
<PAGE> 10
<TABLE>
<S> <C>
Greater than 14.5%
to and including 15.5% 72%
Greater than 15.5%
to and including 16.5% 71%
Greater than 16.5%
to and including 17.5% 70%
</TABLE>
Each Applicable Percentage shall be effective from the date on which
Agent determines the Dilution Percentage until the date on which the
Agent determines that the Dilution Percentage has changed. Agent's
determination of the Applicable Percentage shall be conclusive absent
manifest error. If for any reason the Agent is prohibited from
conducting any audit or is otherwise unable to compute the Dilution
Percentage, the Applicable Percentage shall automatically be a
percentage which is 2% below the Applicable Percentage then in effect
until such time as Agent determines a new Dilution Percentage.
"Asset" shall mean any interest of a Person in any kind of
property or asset, whether real, personal, or mixed real and personal,
or whether tangible or intangible.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Bank and an Eligible Assignee, and accepted by Agent,
in substantially the form of Exhibit A-1 attached hereto.
"Audit Contracts Location Percentage" shall mean a percentage
equal to the difference between (i) that percentage of Contracts, by
volume, that were not located in a test sampling during an audit and
(ii) 10% for the first audit undertaken after the date of this
Agreement and 5% for each audit thereafter. By way of illustration
only, if at the first audit undertaken after the date of this Agreement
Agent could not locate 12% of Contracts in a test sampling, the Audit
Contracts Location Percentage would be 2%. An Audit Contracts Location
Percentage shall be effective from the date it is determined by Agent
until such time as Agent determines a new Audit Test Percentage.
"Audit Percentage" shall mean the Audit Contracts Location
Percentage plus the Audit Proof of Delivery Percentage.
"Audit Proof of Delivery Percentage" shall mean a percentage
equal to the difference between (i) that percentage of Contracts, by
volume, for which proof of delivery location was insufficient in a test
sampling during an audit and (ii) a percentage determined by
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<PAGE> 11
Agent in its sole discretion to reflect an acceptable percentage of
such Contracts. By way of illustration only, if at any audit Agent
should find that proof of delivery location was insufficient for 22% of
Contracts in a test sampling and has determined that an acceptable
percentage of Contracts for which proof of delivery was insufficient
was 20%, the Audit Proof of Delivery Percentage would be 2%. An Audit
Proof of Delivery Percentage shall be effective from the date it is
determined by Agent until such time as Agent determines a new Audit
Proof of Delivery Percentage.
"Auditors" shall mean Deloitte & Touche or such other nationally
recognized independent certified public accountants to Obligor
acceptable to Agent and Required Banks.
"Bank" and "Banks" shall have the respective meanings ascribed to
such terms in the introduction to this Agreement, and shall include any
additional Bank that becomes a party hereto pursuant to Section 11.19,
and any Eligible Assignee that becomes a party hereto pursuant to
Section 11.8.
"Bankruptcy Code" shall mean The Bankruptcy Reform Act of 1978
(Title 11), as amended or supplemented from time to time, and any
successor statute, and all of the rules and regulations issued or
promulgated in connection therewith.
"Base LIBOR" shall mean, for any Interest Period, the rate per
annum (rounded upward, to the nearest one-hundredth (1/100) of one
percent (1%)), as determined by Agent in accordance with its usual
procedures (which determination shall be conclusive in the absence of
manifest error), equal to the arithmetic average of the rates per annum
at which deposits in Dollars are offered by each Reference Bank in
London, England to prime banks in the London interbank market at 11:00
a.m. (London time) two Eurodollar Business Days before the first day of
such Interest Period in an amount substantially equal to the proposed
Eurodollar Rate Borrowing and for a period equal to such Interest
Period. If any Reference Bank fails to provide its offered rate to
Agent by 11:00 a.m. (London time) two Eurodollar Business Days before
the first day of such Interest Period, the Eurodollar Rate shall be
determined on the basis of the average of the offered rate(s) furnished
by the Reference Bank(s) which so notify Agent at or prior to said
11:00 a.m. (London time).
"Base Rate" shall mean, at any time, a fluctuating rate per annum
equal to the higher of (a) the Reference Rate, and (b) the Federal
Funds Rate plus 0.5%.
- 5 -
<PAGE> 12
"BASI" shall mean BA Securities, Inc., its successors and
assigns, its Affiliates, and the officers, directors, employees,
agents, and attorneys-in-fact of such Persons and Affiliates.
"Basic Rate" shall mean a fluctuating rate, per annum, equal to
the Base Rate plus the Applicable Basic Rate Margin.
"Basic Rate Loan" shall mean any Loan that bears interest at the
Basic Rate.
"Basic Rate Borrowing" shall mean any Borrowing designated by
Borrower as a Basic Rate Borrowing pursuant to Sections 2.8 or 2.9
hereof, or any Borrowing which, pursuant to Section 2.9 hereof, is
deemed to be converted to a Basic Rate Loan.
"Basic Rate Loan" shall mean any Loan under the Revolving Credit
Facility that bears interest at the Basic Rate.
"BCE" shall have the meaning ascribed to such term in the
introduction to this Agreement.
"BCE Guaranty" shall have the meaning ascribed to such term in
Schedule A-1.
"BCE Security Agreement" shall have the meaning ascribed to such
term in Schedule A-1.
"BofA" shall mean Bank of America National Trust and Savings
Association, and its successors.
"BofA Funding Amount" means that dollar amount equal to (a) the
total principal amount of all Loans outstanding to Borrower on the
Effective Date immediately prior to the effectiveness hereof (including
any Loans funded on such date), divided by (b) 84.
"Borrower" shall have the meaning ascribed to such term in the
introduction to this Agreement.
"Borrower Security Agreement" shall have the meaning ascribed to
such term in Schedule A-1.
"Borrowing" shall mean a borrowing consisting of Loans made
severally by each Bank to Borrower.
"Borrowing Base" shall mean, on the date any determination
thereof is to be made, an amount equal to the product of: (a) the
result of the Net Unpaid Balances of Eligible Contracts less the
Contracts Reserve; multiplied by (b) the Applicable Percentage.
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<PAGE> 13
"Borrowing Base Certificate" shall mean that certain certificate,
from time to time to be delivered by Borrower to Agent in accordance
herewith, executed by the chief financial officer or controller of
Borrower, and substantially in the form of Exhibit B-1 attached hereto.
"Capital Expenditures" shall mean, when used in connection with
any Person, any expenditure (whether paid in cash or accrued as
liabilities and including that portion of Capitalized Leases which is
properly capitalized on a balance sheet) made by such Person for fixed
or capital Assets which should be capitalized in accordance with GAAP.
"Capitalized Lease" shall mean any lease of an Asset by a Person
as lessee which would, in conformity with GAAP, be required to be
accounted for as a capital lease on the balance sheet of that Person.
"Cash Collateral Account" shall mean a deposit account of
Borrower maintained with Agent deposits in which shall bear interest at
a rate per annum equal to the Federal Funds Rate minus 0.125% per
annum.
"Cash Equivalents" shall mean (i) marketable direct obligations
issued or unconditionally guaranteed by the United States Government or
issued by any agency thereof and backed by the full faith and credit of
the United States, in each case maturing within one year from the date
of acquisition thereof; (ii) marketable direct obligations issued by
any state of the United States of America or any political subdivision
of any such state or any public instrumentality thereof maturing within
one year from the date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from either Standard
& Poor's Corporation ("S&P") or Moody's Investors Service, Inc.
("Moody's"), (or, if at any time neither such rating service shall be
rating such obligations, then from such other nationally recognized
rating services acceptable to Agent); (iii) commercial paper maturing
no more than one year from the date of creation thereof and, at the
time of acquisition, having one of the two highest ratings obtainable
from either S&P or Moody's (or, if at any time neither such rating
service shall be rating such obligations, then from such other
nationally recognized rating services acceptable to Agent); (iv)
certificates of deposit (domestic or eurodollar) or bankers'
acceptances maturing within one year from the date of acquisition
thereof issued by (A) any commercial bank organized under the laws of
the United States of America or any state thereof or the District of
Columbia, and whose long-term debt is rated "A" or better by Moody's
and S&P and with combined
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<PAGE> 14
capital and surplus of not less than $500,000,000, or (B) any Bank
(collectively, "Qualifying Banks"); and (v) investments in money market
funds that invest solely in Cash Equivalents described in clauses (i)
through (iv) above.
"Central Ram" shall mean Central Ram, Inc., a Delaware
corporation and a wholly-owned subsidiary of BCE.
"Central Ram Guaranty" shall have the meaning ascribed to such
term in Schedule A-1.
"Central Ram Security Agreement" shall have the meaning ascribed
to such term in Schedule A-1.
"CFAC" shall mean Central Financial Acceptance Corporation, a
Delaware corporation that is a Subsidiary of BCE and is the sole
shareholder of Borrower.
"CFAC Guaranty" shall have the meaning ascribed to such term in
Schedule A-1.
"CFAC Stock Pledge Agreement" shall have the meaning ascribed to
such term in Schedule A-1.
"Change of Control Event" shall mean the occurrence of an event
which results in (i) West Coast no longer owning or controlling,
directly or indirectly, at any time, at least fifty-one percent (51%)
of the voting power of issued and outstanding capital stock of
Holdings, (ii) Holdings no longer owning or controlling, directly or
indirectly, at any time, at least fifty-one percent (51%) of the voting
power of issued and outstanding capital stock of BCE, (iii) BCE no
longer owning at least fifty-one percent (51%) of the voting power of
issued and outstanding capital stock of CFAC, or (iv) CFAC no longer
owning or controlling, directly or indirectly, at any time, at least
one hundred percent (100%) of the voting power of issued and
outstanding capital stock of Borrower. For purposes of this definition,
the term "control" shall have the meaning ascribed to such term in the
definition of "Affiliate."
"Clarification Letter" shall mean a letter agreement dated as of
the Old Signing Date, entered into between West Coast and Agent, in
form and substance satisfactory to Agent, clarifying that the Net Worth
Maintenance Agreement continues to apply for the benefit of Agent and
Banks under this Agreement and the Loan Documents, and clarifying the
understanding of the parties as to the meaning of certain of the
provisions of the Net Worth Maintenance Agreement. The
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<PAGE> 15
Clarification Letter is not intended by the parties to constitute an
amendment or modification of the Net Worth Maintenance Agreement, but
rather merely a clarification of its meaning as intended by the parties
thereto.
"Closing Date" shall mean the date as of which all of the
conditions precedent set forth in Section 3.1 are satisfied, or waived
or deferred in the sole discretion of Agent.
"Closing Deadline" shall mean June 27, 1996, or such later date
as may be agreed upon by Borrower and Banks.
"Code" shall mean the Internal Revenue Code of 1986, as amended
or supplemented from time to time, or any successor or superseding tax
laws of the United States of America, and all of the rules and
regulations issued or promulgated in connection therewith.
"Collateral" shall mean all Assets of any Loan Party subject to a
Lien in favor of Agent on behalf of the Banks pursuant to any Loan
Document.
"Collateral Agency Intercreditor Agreement" shall mean that
certain Second Amended and Restated Collateral Agency Intercreditor
Agreement dated of even date herewith, among Collateral Agent and
Banks.
"Collateral Agent" shall mean Agent, acting as collateral agent
for itself and Banks, pursuant to the terms of the Collateral Agency
Intercreditor Agreement.
"Commercial Letter of Credit" shall mean any letter of credit
issued hereunder (including any letter of credit issued under the Prior
Loan Agreement that is converted on the Closing Date to a letter of
credit issued hereunder and is deemed to have been issued hereunder)
for the purpose of supporting Obligor's obligations incurred in the
ordinary course of business and which is conditioned upon the
presentation of documents (as that term is defined in Section5103(b) of
the UCC).
"Commitment" shall mean, at the time any determination thereof is
to be made, Banks' aggregate commitment to extend credit to Borrower
under the Sections 2.1 and 2.1A; such commitment shall equal, subject
to the effect of Section 2.11 hereof, Sixty Million Dollars
($60,000,000) and, upon the addition of one or more additional Banks
hereunder in accordance with Section 11.19, up to Seventy-Five Million
Dollars ($75,000,000). The amount of the Commitment at any time shall
be the sum of $60,000,000 and the amount set
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forth on each Supplemental Signature Page executed by Obligor, a New
Bank, and Agent. The initial pro rata share of the Commitment of each
Bank is set forth on Exhibit C-1 attached hereto.
"Commitment Fee" shall have the meaning ascribed to such term in
Section 2.13 of this Agreement.
"Confidential Information" shall mean information that Obligor or
any agent of Obligor has delivered to Agent or any Bank in connection
with this Agreement, but does not include any information that is or
becomes generally available to the public or that is or becomes
available to Agent or such Bank from a source other than Obligor or any
agent of Obligor that is not, to the best of Agent's or such Bank's
knowledge, acting in violation of an agreement with Obligor, or in
breach of a duty, regarding the confidential nature of such
information.
"Contracts" shall mean all present and future written consumer
credit agreements, consumer installment contracts, chattel paper, and
any other documents of a similar nature which (i) evidence an
obligation of an Account Debtor to pay Borrower (directly, or as the
assignee of BCE or Central Ram) or Central Ram for purchased goods,
(ii) arise out of sales of goods by BCE or Central Ram, (iii) create in
Borrower or Central Ram a first priority perfected security interest in
such goods, and (iv) have been or will be assigned or pledged to Agent
as security for the payment of the Secured Indebtedness to Banks and
Agent.
"Contracts Reserve" shall mean the balance due on all Contracts
times the Audit Percentage.
"Contractual Obligation" shall mean, as applied to any Person,
any provision of any security agreement entered into by that Person or
of any material indenture, mortgage, deed of trust, contract,
undertaking, agreement, or other instrument to which that Person is a
party or by which it or any of its owned Assets is bound or to which it
or any of its owned Assets is subject.
"Default Rate" shall have the meaning ascribed thereto in Section
2.6.
"Designated Event of Default" shall mean (a) any Event of Default
under Section 7.1(a) hereof, or (b) any other Event of Default that is
not fully cured or waived by the tenth (10th) Domestic Business Day
after notice of the existence thereof is given by Agent to Obligor.
Nothing in this paragraph (w) shall
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require Agent to give any such notice to Obligor, (x) shall require
Agent or any Bank to waive any Event of Default, (y) shall give Obligor
any grace period or cure right with respect to Events of Default not
otherwise provided for in the Loan Documents, or (z) shall affect any
right or remedy (other than the right to charge the Default Rate)
available to Agent or Banks by reason of any Event of Default.
"Dilution Percentage" shall mean, expressed as a percentage for
any date of determination and calculated on a rolling twelve-month
basis, the sum of the total cost of returned merchandise plus the total
balance due on write-offs plus the total amount of other credit
adjustments (including without limitation allowances, discounts, and
other non-cash reductions) divided by the average balance due on
Contracts as at the beginning of each month. Each component of the
Dilution Percentage shall be determined by Agent in its reasonable
discretion based on audits conducted semi-annually or more frequently
as permitted under this Agreement.
"Disclosure Statement" shall mean that certain statement,
executed and delivered by a Responsible Officer of Obligor, which sets
forth information regarding or exceptions to the representations,
warranties, and covenants made by Obligor herein, as amended from time
to time to the extent permitted hereby, a true copy of which, as in
effect on the Signing Date, is attached hereto as Schedule D-1.
"Dollars" and "$" shall mean United States of America dollars or
such coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public and private
debts in the United States of America.
"Domestic Business Day" shall mean a day (other than a Saturday
or Sunday) on which major commercial banks are open for business in
California.
"Effective Date" means the first Domestic Business Day as of
which the conditions precedent to the effectiveness hereof set forth in
Section 3 hereof are satisfied, or waived by the parties to whose
benefit such conditions run. Upon occurrence of the Effective Date,
Agent will confirm same to the other parties for purposes of future
reference.
"Eligible Assignee" shall mean any of the following Persons:
(a) A commercial bank organized under the laws of the United
States, or any State thereof;
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(b) A commercial bank organized under the laws of any other
country, or a political subdivision thereof, provided that (x)
such foreign bank is acting through a branch or agency located in
the United States, or (y) such Bank is organized under the laws
of a country that is a member of the Organization for Economic
Cooperation and Development or a political subdivision of such
country; and
(c) A Person that is:
(i) a Subsidiary of an Eligible Assignee described in
clause (a) or (b) above; or
(ii) a Subsidiary of a "bank holding company" (as
defined in the federal Bank Holding Company Act) of which an
Eligible Assignee described in clause (a) or (b) above also
is a Subsidiary;
provided that, in either case, for the purpose of this clause
(c), such Person is acting through an office located in the
United States and is a corporation or other similar type of
entity primarily engaged in the business of asset-based
commercial lending to businesses.
"Eligible Contracts" shall mean any Contract which, in the
opinion of Agent in its sole and absolute discretion, meets acceptable
standards as to creditworthiness of Account Debtors, adequacy of
security interests, disclosures, documentation, or any other matters.
Agent shall provide oral or written notice to Borrower of the rejection
of any Contract as an Eligible Contract and the reason for such
rejection.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended or supplemented from time to time, and any successor
statute, and all of the rules and regulations issued or promulgated in
connection therewith.
"ERISA Affiliate" shall mean any trade or business (irrespective
of whether incorporated) which is a member of a group of which Obligor
is a member within the meaning of Section414 of the Code.
"Eurodollar Base Rate" shall mean, for any Interest Period, the
rate per annum (rounded upwards to the nearest whole one-hundredth
(1/100) of one percent), determined by Agent as the quotient of: (a)
Base LIBOR; divided by (b) the number equal to one hundred percent
(100%) minus the LIBOR Reserve
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<PAGE> 19
Percentage. Each determination of a Eurodollar Rate by Agent, including
any determination as to the applicability or allocability of reserves
to eurocurrency liabilities or as to the amount of such reserves, shall
be conclusive in the absence of manifest error. A change in the LIBOR
Reserve Percentage during any Interest Period shall not result in any
adjustment of the Eurodollar Base Rate for such period.
"Eurodollar Business Day" shall mean any Domestic Business Day on
which major commercial banks are open for international business
(including dealings in Dollar deposits) in Los Angeles, California, New
York, New York, and London, England.
"Eurodollar Illegality" shall have the meaning ascribed to such
term in Section 2.16(a) of this Agreement.
"Eurodollar Rate" shall mean the rate, per annum, equal to the
Eurodollar Base Rate plus the Applicable Eurodollar Rate Margin.
"Eurodollar Rate Borrowing" shall mean any Borrowing designated
by Borrower as a Eurodollar Rate Borrowing pursuant to Sections 2.8 or
2.9 of this Agreement.
"Eurodollar Rate Loan" shall mean any Loan that bears interest at
a rate based upon the Eurodollar Rate.
"Event of Default" shall have the meaning ascribed to such term
in Article VII of this Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended or supplemented from time to time, and any successor statute,
and all of the rules and regulations issued or promulgated in
connection therewith.
"Federal Funds Rate" shall mean, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average (rounded upwards to the nearest 1/100th of one
percent) of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is
a Business Day, the average (rounded upwards to the nearest 1/100th of
one percent) of the quotations for such day on such transactions
received
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by Agent from three Federal funds brokers of recognized standing
selected by Agent.
"Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System or any successor thereto.
"Fee Letter" shall mean that certain letter, dated as of the
Signing Date, from BofA to Borrower, setting forth certain fees payable
in connection with this Agreement, including a periodic administrative
and collateral agent fee.
"Fees" shall mean, depending on the context, any or all of the
Commitment Fee, the Participation Fee, any fees payable pursuant to
Section 2.2(c) with respect to Letters of Credit, or any fees set forth
in the Fee Letter.
"Finance" shall mean Central Consumer Finance Company, a Delaware
corporation (formerly known as Banner's Central Electric Consumer
Finance Company).
"Financing Agreement" shall mean that certain Financing
Agreement, dated as of June 24, 1996, among Central Ram, BCE, and
Borrower pertaining to, among other things, the sale of Contracts by
BCE to Borrower and the sale of Contracts by Central Ram to Borrower.
"Floor Plan Lender" shall mean ITT Commercial Finance Corp., a
Nevada corporation, and any other or successor inventory floor plan
lender to BCE and/or Central Ram (a) that is a commercial finance
company or bank regularly engaged in California in the business of
providing floor plan inventory financing to retailers of consumer goods
and that has a stature and reputation in such capacity comparable with
that of leading floor plan lenders such as ITT Commercial Finance
Corp., or (b) that is otherwise acceptable to Agent and Required Banks
in their discretion.
"GAAP" shall mean Generally Accepted Accounting Principles
recognized as such in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"Guarantors" means, collectively, BCE, CFAC, Central Ram, and any
other Person who executes and delivers a guaranty in favor of Agent or
Banks after
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<PAGE> 21
the Closing Date in respect of the Secured Indebtedness of Borrower.
"Hedge Agreements" shall mean any interest rate swap agreement,
interest rate collar agreement, or other similar agreement or
arrangement entered into by Borrower and BofA, but expressly excluding
cap agreements.
"Hedge Reserve" shall mean, as of any date of determination
thereof, the reserve, if any, from time to time established by Required
Banks based on a percentage of the notional principal amounts of any
outstanding Hedge Agreements.
"Highest Lawful Rate" shall mean, with respect to any Bank, the
maximum non-usurious interest rate, as in effect from time to time,
which may be charged, contracted for, reserved, received, or collected
by such Bank in connection with this Agreement or the Notes, or any
other documents executed in connection herewith or therewith.
"Holdings" shall mean Banner Holdings, Inc., a Delaware
corporation.
"Huntington Park Expansion" shall mean the expansion of BCE's
business involving the opening in 1992 of an additional retail store
location in the Pacific Randolph Shopping Center, 6051 Pacific
Boulevard, Huntington Park, California, in a leased facility with
approximately 26,912 square feet of commercial space, including
execution of the Huntington Park Lease, and including related leasehold
improvements and installation of fixtures and equipment.
"Huntington Park Lease" shall mean a lease of approximately
26,912 square feet of commercial space in the Pacific Randolph Shopping
Center, 6051 Pacific Boulevard, Huntington Park, California, between
Daisy Lady Victoria, Ltd., a California limited partnership, as lessor,
and BCE, as lessee, for an initial term of 10 years, with two 5-year
renewal options, with an initial rental payment of approximately
$32,300 per month, with provisions for rental adjustments in future
years, which lease either has been entered into as of the Old Signing
Date, or was contemplated to be have been entered into soon after the
Old Signing Date.
"Indebtedness" shall mean, with respect to any Person, the
aggregate amount of, without duplication: (a) all obligations of such
Person for borrowed money; (b) all obligations of such Person evidenced
by bonds, debentures, notes, or other similar instruments and all
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reimbursement or other obligations of such Person in respect of letters
of credit, bankers acceptances, interest rate swaps, controlled
disbursement accounts, or other financial products; (c) all obligations
of such Person to pay the deferred purchase price of Assets or
services, exclusive of trade payables which, by their terms, are due
and payable within ninety (90) calendar days of the creation thereof;
(d) all obligations under Capitalized Leases of such Person; (e) all
obligations or liabilities of others secured by a Lien on any Asset
owned by such Person, irrespective of whether such obligation or
liability is assumed, to the extent of the lesser of such obligation or
liability or the fair market value of such Asset; and (f) all
Accommodation Obligations of such Person.
"Indemnified Liabilities" shall have the meaning ascribed to such
term in Section 10.2 of this Agreement.
"Indemnitee" shall have the meaning ascribed to such term in
Section 10.2 of this Agreement.
"Initial Basic Rate Loan Interest Payment Date" means the day
that is the first day of the first calendar month that begins after the
Closing Date.
"Intangible Property" shall mean trade secrets, secret processes
or other confidential information or know-how, brand names, copyrights,
patents, service marks, trademarks, trade names, and all registrations
or applications for registration of any of the foregoing.
"Interest Payment Date" shall mean, with respect to any
Eurodollar Rate Loan, the last day of each Interest Period applicable
to such Loan; provided, however, that in the case of any Interest
Period in excess of three (3) months, "Interest Payment Date" shall
also include the last day of each three-month period following the
commencement of that Interest Period.
"Interest Period" shall mean, with respect to each Eurodollar
Rate Borrowing, the period commencing on the date of such Eurodollar
Rate Borrowing and ending one (1), two (2), three (3), six (6), or,
subject to the approval of all Banks, twelve (12) months thereafter, as
Borrower may elect pursuant to the applicable Notice of Borrowing or
Notice of Conversion/Continuation; provided, however, that:
(i) any Interest Period which would otherwise end on a day
which is not a Eurodollar Business Day shall be extended to the
next
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<PAGE> 23
succeeding Eurodollar Business Day unless such Eurodollar
Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Eurodollar
Business Day;
(ii) Any Interest Period which begins on the last
Eurodollar Business Day of the calendar month (or on a day for
which there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the last
Eurodollar Business Day of the calendar month at the end of such
Interest Period; and
(iii) Any Interest Period designated to begin on a date that
is less than 90 days after the Closing Date shall not be more
than one month unless all Banks in their discretion agree
otherwise.
"Investment" shall mean, as applied to any Person, any direct or
indirect purchase or other acquisition by that Person of, or beneficial
interest in, stock, instruments, bonds, debentures or other securities
of any other Person, or any direct or indirect loan, advance (other
than advances to employees for moving, travel, or payroll expenses,
drawing accounts, or similar expenditures in the ordinary course of
such Person's business), or capital contribution by such Person to any
other Person, including all indebtedness and accounts receivable from
that other Person which did not arise from sales or the rendition of
services to that other Person in the ordinary and usual course of such
Person's business, and deposit accounts (including certificates of
deposit). The amount of any Investment shall be the original cost of
such Investment, plus the cost of all additions thereto, without any
adjustments for increases or decreases in value, or write-ups,
write-downs, or write-offs with respect to such Investment.
"Issuing Bank" shall mean BofA or any other Bank which, with the
consent of Agent and Required Banks and on behalf of all Banks, issues
a Letter of Credit requested by Borrower hereunder.
"Landlord Waivers" shall mean those certain Landlord Waivers
executed in September of 1991 by S.D.J. Enterprises and the Perelmans,
respectively, and Security Pacific National Bank, as predecessor in
interest of Collateral Agent. At such time as the Huntington Park Lease
is executed and delivered by the lessor and lessee thereunder,
"Landlord Waivers" also shall include a Landlord Waiver to be entered
into between the lessor under the Huntington Park Lease and Collateral
Agent, in form and substance satisfactory to
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Collateral Agent and its counsel (which Landlord Waiver shall be deemed
satisfactory in form and substance to Collateral Agent and its counsel
if it is in substantially the same form as the other Landlord Waivers
delivered in September of 1991).
"Letters of Credit" shall mean, depending on the context, any or
all of the Commercial Letters of Credit or Standby Letters of Credit
issued pursuant to the terms of Sections 2.1(e) or 2.2 of this
Agreement, including without limitation the letters of credit issued
and outstanding under the Prior Loan Agreement on the Closing Date that
are converted to Letters of Credit outstanding hereunder.
"Letter of Credit Amount" shall mean an amount equal to Three
Million Dollars ($3,000,000).
"Letter of Credit Usage" shall mean, as of any date of
determination thereof, the sum of: (a) the Stated Amount of each Letter
of Credit then outstanding; and (b) the aggregate amount of all Unpaid
Drawings.
"LIBOR Reserve Percentage" shall mean, as of any date of
determination thereof, the maximum percentage (rounded upward to the
nearest whole one-hundredth (1/100) of one percent (1%)), as determined
by Agent in accordance with its usual procedures (which determination
shall be conclusive in the absence of manifest error), which is in
effect on such date as prescribed by the Federal Reserve Board for
determining the reserve requirements (including supplemental, marginal,
and emergency reserve requirements) with respect to eurocurrency
funding (currently referred to as "eurocurrency liabilities") of a
member bank in the Federal Reserve System.
"Lien" shall mean any lien, mortgage, pledge, assignment
(including any assignment of rights to receive payments of money),
security interest, charge, or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"Loan" and "Loans" shall mean the loans or extensions of credit
to be made severally (not jointly and not jointly and severally) by
Banks to Borrower pursuant to Article II of this Agreement.
"Loan Documents" shall mean this Agreement, the Notes and the
Ancillary Documents, as any one or more of them from time to time may
be amended, restated, supplemented or modified.
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<PAGE> 25
"Loan Parties" means, collectively, Borrower and the Guarantors,
and "Loan Party" means any one of them.
"Material Adverse Effect" shall mean a material and adverse
effect on the business, operations, Assets, or condition (financial or
otherwise) of a Person, taken as a whole.
"Maturity Date" shall mean the earlier of (a) August 30, 1996,
and (b) such earlier date of termination if the entire Commitment is
terminated pursuant to the terms of Section 2.11 hereof.
"Merger Sub" shall mean BBS Merger Sub, Inc., a California
corporation, which corporation heretofore was merged into BCE.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined
in Section4001(a)(3) of ERISA, Section414 of the Code, or Section3(37)
of ERISA which is maintained for employees of Obligor or an ERISA
Affiliate.
"Net Cash Proceeds" shall mean the excess, if any, of: (a) the
gross cash proceeds received by Obligor from sale or disposition of any
Asset of Obligor plus, as and when received, all cash payments received
subsequent to such sale or disposition representing any deferred
portion of the purchase price therefor; less (b) the sum of: (i) a
reasonable reserve for Taxes payable incident to such sale or
disposition, the amount of which shall be adjusted to reflect the
actual Taxes paid in connection therewith; plus (ii) a reasonable
reserve for the after tax cost of indemnification payments (fixed and
contingent) attributable to seller's indemnities to the purchaser
undertaken by Obligor in connection with such sale or disposition; plus
(iii) the direct costs and expenses incurred by Obligor in connection
with such sale or disposition (including underwriting fees and
commissions, brokers' fees, and attorneys' fees); all as reflected in
an officer's certificate delivered by a Responsible Officer of Obligor
to Agent.
"Net Contracts" shall mean the total amount owed to Borrower and
Central Ram under Contracts less all unearned interest or finance
charges thereon.
"Net Unpaid Balances" shall mean the total owing to Borrower or
Central Ram, as the case may be, on its Eligible Contracts less: (i)
all unearned interest or finance charge thereon; (ii) all amounts owing
thereon for commercial services and warranty agreements; (iii) unearned
insurance premiums; and (iv) all amounts owing under each such
agreement with respect to which any payment is more than sixty (60)
days past due.
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<PAGE> 26
"Net Worth Maintenance Agreement" shall mean that certain letter
agreement, dated as of September 20, 1991, executed by West Coast in
favor of Security Pacific National Bank, as the predecessor of Agent,
which letter agreement states in the introductory paragraph thereof
that it may be referred to as the "Net Worth Maintenance Agreement."
"New Bank" shall mean a financial institution acceptable to BASI
that would meet the requirements for becoming an Eligible Assignee
hereunder.
"New Mortgages" shall mean mortgages or deeds of trust to be
hereafter entered into by BCE in favor of financial institutions that
provide New Mortgage Loans, which shall pertain to the financing of new
retail premises of BCE, which shall encumber such retail premises, and
which in each instance shall be upon terms and conditions (including
the scope of the Liens provided for therein) acceptable to each Bank.
"New Mortgage Loan" shall mean any term loans hereafter obtained
by BCE from financial institutions and secured by New Mortgages,
pertaining to the financing of new retail premises of BCE, in each
instance in amounts and upon terms and conditions acceptable to each
Bank.
"Notes" shall mean any one or more of the promissory notes issued
by Borrower to the order of a Bank evidencing the obligation of
Borrower to repay the Loans made by such Bank.
"Notice of Borrowing" shall mean a notice (which, except as set
forth in Section 2.8(e) hereof, shall be irrevocable) from Borrower to
Agent of Borrower's intention to borrow all or any portion of the Loans
(or request the issuance of all or any portion of the Letters of Credit
permitted hereunder) substantially in the form of Exhibit N-2 attached
hereto, executed by a Responsible Officer of Borrower and delivered to
Agent pursuant to Section 2.8 hereof.
"Notice of Conversion/Continuation" shall mean an irrevocable
notice from Borrower to Agent of Borrower's request to convert all or
any portion of the Loans bearing interest at one rate to Loans bearing
interest at another rate or continue the Loans for another designated
Interest Period, substantially in the form of Exhibit N-3 hereto,
executed by a Responsible Officer of Borrower and delivered to Agent
pursuant to Section 2.9 hereof.
"Obligor" means Borrower, BCE, and each of them, collectively and
individually, jointly and severally.
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<PAGE> 27
"Officer's Compliance Certificate" shall mean a certificate of
the chief financial officer or controller of Obligor, substantially in
the form of Exhibit O-1 attached hereto.
"Old Holdings Designated Subsidiaries" shall mean those
Subsidiaries of Holdings in existence immediately prior to the Closing
Date that operated the small loan, automobile sales, travel, and
related businesses of Holdings and its Subsidiaries.
"Old Signing Date" means September 10, 1992
"Operating Lease" shall mean, as applied to any Person, any lease
of any Asset which is not a Capitalized Lease, other than any such
lease under which such Person is the lessor.
"Participation Fee" shall have the meaning ascribed to such term
in Section 2.13.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, as
defined in Title IV of ERISA, or any successor thereto.
"Pension Protection Act" shall mean Part II of Subtitle D of
Title IX of the Omnibus Budget Reconciliation Act of 1987, as amended
or supplemented from time to time, and any successor statute, and all
of the rules and regulations issued or promulgated in connection
therewith.
"Perelman Subordinated Note" shall mean that certain promissory
note, in the original principal amount of $2,000,000 and dated May 9,
1991, issued by Merger Sub to the Perelmans, and subject to the terms
of the Perelman Subordination Agreement.
"Perelman Subordination Agreement" shall mean that certain
agreement, dated on or about September 20, 1991, by the Perelmans for
the benefit of the holders of certain Indebtedness of BCE, whereby the
Indebtedness evidenced by the Perelman Subordinated Note is
subordinated to certain Indebtedness (including the Secured
Indebtedness).
"Perelmans" shall mean Mr. Myron Richard Perelman and Mrs. Arleen
Frances Perelman, individually and as trustees of the Perelman Family
Trust U/T/A dated June 19, 1980.
"Permanent Subordinated Debt" shall mean Subordinated Debt
incurred by BCE to any one or more of its Affiliates, provided that the
subordination agreement executed in connection with such Subordinated
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<PAGE> 28
Debt shall provide, among other things, that payments of interest (at a
rate not exceeding 10% per annum) may be made on the Permanent
Subordinated Debt, subject to the subordination provisions thereof, but
that no principal payments may be made.
"Permitted Expansions" shall mean one or more future expansions
of the business locations of BCE to add additional retail selling or
warehouse facilities, in each case subject to the prior approval by
Required Banks of each of the following: (a) the location and size of
the proposed expansion facility; (b) the terms of any real property
leases pertaining to the proposed expansion facility; (c) the proposed
capital expenditure budget pertaining to such proposed expansion; and
(d) a business plan and projections pertaining to such proposed
expansion. The foregoing notwithstanding, the Huntington Park Expansion
is a Permitted Expansion and has been approved by Required Banks,
subject to approval by Agent of the form and substance of the
Huntington Park Lease and subject to the execution and delivery by the
lessor under such lease and Collateral Agent of a Landlord Waiver with
respect thereto.
"Permitted Liens" shall mean:
(i) Liens for Taxes, assessments, or governmental charges or
claims the payment of which is not at the time required by Section 5.4;
(ii) Statutory Liens of landlords and liens of carriers,
warehousemen, mechanics, materialmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent
or being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made
therefor;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other types of social security, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, performance and return-of-money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(iv) Any attachment or judgment lien unless the judgment it
secures (A) shall, within forty-five (45) days after the entry thereof,
not have been discharged or execution thereof stayed pending appeal, or
(B) shall not have been discharged within forty-five (45) days after
the expiration of any such stay, or
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<PAGE> 29
(C) involves the payment of money in an amount (individually or in the
aggregate with all other attachments and judgments) of Two Hundred
Thousand Dollars ($200,000) or more in excess of any insurance coverage
with respect thereto (as to which the insurer has not disputed its
liability in respect of such coverage);
(v) Easements, rights-of-way, restrictions, covenants,
conditions, licenses, zoning requirements, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the
business of Obligor or materially adversely affecting the value of the
relevant Asset;
(vi) Liens in favor of Agent, for the benefit of Banks, or any
of its successors or assigns;
(vii) Liens in favor of Floor Plan Lenders securing Indebtedness
permitted under Section 6.1(h);
(viii) Purchase money security interests in favor of vendors of
BCE in and to the inventory (and identifiable cash proceeds thereof
received on or before delivery thereof by BCE to a purchaser) sold by
such vendors to BCE securing Indebtedness in an aggregate amount not to
exceed at any time Five Hundred Thousand Dollars ($500,000);
(ix) Liens on the Assets of BCE arising from filing UCC
financing statements regarding Operating Leases;
(x) Liens on the Assets of BCE (a) in favor of lessors under
Capitalized Leases or (b) taken by or granted to a Person who, by
making advances or incurring an obligation gives value to enable
Obligor to acquire rights in or the use of furniture, fixtures, or
equipment of Obligor encumbered by such Liens; provided, however, that
Liens under clauses (a) or (b) shall qualify as Permitted Liens only to
the extent that the aggregate Indebtedness secured by all such Liens,
together with the aggregate Indebtedness owed to lessors under
Capitalized Leases which are not secured by Permitted Liens, at any
time outstanding during any fiscal year of BCE, does not exceed by more
than Two Hundred Fifty Thousand Dollars ($250,000) the amount equal to
the maximum aggregate Indebtedness of BCE at any time outstanding
during the immediately preceding fiscal year of BCE that was secured by
Liens described in clauses (a) or (b) of this paragraph or that was
owed to lessors under Capitalized Leases not secured by Permitted
Liens;
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(xi) Liens set forth in the Disclosure Statement; and
(xii) Liens on the Assets of BCE provided for in the New
Mortgages.
"Person" shall mean and include natural persons, corporations,
limited partnerships, general partnerships, joint stock companies,
joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, or other organizations,
irrespective of whether they are legal entities, and governments and
agencies and political subdivisions thereof.
"Plan" shall mean an "employee benefit plan" as defined in
Section3(3) of ERISA in which any personnel of the Obligor or an ERISA
Affiliate participate or from which any such personnel may derive a
benefit, excluding any Multiemployer Plan, but including any plan
either established or maintained by Obligor or any ERISA Affiliate and
to which such Person contributes under the laws of any foreign country.
"Preferred Stock" shall mean, for any corporation, any class or
series of equity securities of such corporation which is entitled, upon
any distribution of such corporation's Assets, whether by dividend or
by liquidation, to a preference over another class or series of equity
securities of such corporation, and which by its terms is either: (a)
entitled to receive cash distributions (or Asset distributions or
distributions of securities other than distributions in kind of
preferred stock of the same class and series) of such corporation's
Assets, whether by dividend or by liquidation; or (b) mandatorily
redeemable or redeemable at the option of the issuer or holder thereof
for cash (or Assets or securities other than distributions in kind of
preferred stock of the same class and series) by such corporation, or
is convertible or exchangeable, mandatorily or at the option of the
issuer or holder thereof, into Indebtedness of such corporation.
"Prior Loan Agreement" shall have the meaning ascribed to such
term in the introduction to this Agreement.
"Prior Loan Documents" shall have the meaning ascribed to the
term "Loan Documents" under the Prior Loan Agreement, but only relative
to such documents as amended, restated, supplemented, or modified from
time to time prior to the Closing Date.
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<PAGE> 31
"Prior Loan Obligations" shall have the meaning ascribed to such
term in the introduction to this Agreement.
"Reference Bank" shall mean BofA or, in the event no rate
quotations are available from BofA, such other comparable bank as Agent
may deem appropriate.
"Reference Rate" shall mean the rate of interest most recently
announced by BofA at its headquarters office in San Francisco,
California, as its "Reference Rate." The Reference Rate is one of
BofA's base rates and serves as the basis upon which effective rates of
interest are calculated for those loans making reference thereto. The
Reference Rate is evidenced by the recording thereof after its
announcement in such internal publication or publications of BofA as
Agent may designate and may not be the lowest of BofA's base rates. Any
change in any of the interest rates chargeable hereunder resulting from
a change in the Reference Rate shall become effective as of 12:01 a.m.
on the Domestic Business Day on which each change in the Reference Rate
is announced by BofA.
"Reportable Event" shall mean any event described in Section4043
(excluding subsections (b)(7) and (b)(9)) of ERISA.
"Required Banks" shall mean, as of any date of determination
thereof, Banks having at least sixty-six and two-thirds percent
(66-2/3%) of the aggregate unpaid principal amount then outstanding of
the Loans, or, if no Loans are outstanding at the date of determination
thereof, Banks having at least sixty-six and two-thirds percent
(66-2/3%) of the Commitment; provided that, at any time that there are
two or more Banks, Required Banks shall include at least two Banks.
"Responsible Officer" shall mean the president, chief executive
officer, chief operating officer, chief financial officer, executive
vice president, vice president, or controller of a Person, or such
other officer of such Person designated by a Responsible Officer in a
writing delivered to Agent.
"Restructuring Transactions" shall mean, collectively, (a) the
contribution by Holdings to BCE of all of its investments in the Old
Holdings Designated Subsidiaries, (b) the contribution by BCE to CFAC
of all of its investments in the Old Holdings Designated Subsidiaries,
(c) the contribution by BCE to Borrower of all of its Contracts and the
assumption by Borrower of the Prior Loan Obligations, (d) the
assignment of certain Contracts by Central Ram to
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<PAGE> 32
Borrower, and (e) the contribution by BCE to CFAC of all of its
investments in Borrower.
"Revolving Credit Facility" shall mean the revolving credit
facility described in Section 2.1 hereof.
"Revolving Loan" shall mean a Loan made pursuant to Section 2.1.
"Rewrite Policy" shall mean Obligor's and Central Ram's policy
with regard to rewriting and/or extending Contracts with Account
Debtors, as such policy may be amended, supplemented, or otherwise
modified from time to time.
"Sanwa" shall mean Sanwa Bank California.
"Sister Companies" shall mean, collectively, all direct
Subsidiaries of Holdings and CFAC, excluding BCE and Borrower;
individually, a "Sister Company."
"Sumitomo" shall mean Sumitomo Bank of California.
"SEC" shall mean the Securities and Exchange Commission of the
United States of America or any successor thereto.
"Secured Indebtedness" shall mean all Indebtedness and
obligations of the Loan Parties to Banks or Agent, or any one or more
of them, arising under or relating to any Loan Documents.
"Signing Date" means June 24, 1996, or such other date as is
agreed to by Borrower, Agent and Banks.
"Solvent" shall mean, with respect to any Person on the date any
determination thereof is to be made, that on such date: (a) the fair
valuation of the Assets of such Person is greater than the fair
valuation of such Person's probable liability in respect of existing
debts; (b) such Person does not intend to, and does not believe that it
will, incur debts beyond such Person's ability to pay as such debts
mature; (c) such Person is not engaged in business or a transaction,
and is not about to engage in business or a transaction, which would
leave such Person with Assets remaining which would constitute
unreasonably small capital after giving effect to the nature of the
particular business or transaction; and (d) such Person is generally
paying his or her debts as they become due. For purposes of this
definition: (i) the "fair valuation" of any Assets means the amount
realizable within a reasonable time, either through collection or sale
of such Assets at their regular market value,
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which is the amount obtainable by a capable and diligent businessman
from an interested buyer willing to purchase such Assets within a
reasonable time under ordinary circumstances; and (ii) the term "debts"
includes any legal liability, whether matured or unmatured, liquidated
or unliquidated, absolute, fixed, or contingent.
"Standby Letter of Credit" shall mean any standby letter of
credit issued hereunder (including any letter of credit issued under
the Prior Loan Agreement that is converted on the Closing Date to a
letter of credit issued hereunder and is deemed to have been issued
hereunder) for the purpose of supporting: (a) prior standby letters of
credit to be replaced or supported by letters of credit issued under
this Agreement by an Issuing Bank; (b) the obligations of third party
insurers of Obligor; (c) performance, payment, deposit, or surety
obligations of Obligor, if required by law or governmental regulation
or in accordance with custom and practice in the industry; or (d)
obligations to Floor Plan Lenders in an aggregate amount not to exceed
at any time Seven Hundred Fifty Thousand Dollars ($750,000).
"Stated Amount" shall mean, at any time, the maximum amount
available to be drawn under each Letter of Credit, without regard to
whether any conditions to drawing could then be met.
"Stock Purchase Agreement" shall mean that certain Stock Purchase
Agreement, dated as of May 1, 1991, among Holdings and the Perelmans.
"Subordinated Debt" shall mean (a) the Indebtedness of BCE
evidenced by the Perelman Subordinated Note and (b) other Indebtedness
of BCE which is subordinated in right of repayment to the Secured
Indebtedness pursuant to subordination provisions in form and substance
satisfactory to Required Banks.
"Subsidiary" shall mean, with respect to any Person: (a) any
corporation in which such Person, directly or indirectly through its
Subsidiaries, owns more than fifty percent (50%) of the stock of any
class or classes having by the terms thereof the ordinary voting power
to elect a majority of the directors of such corporation (irrespective
of whether at the time stock of any class or classes of such
corporation shall have or might have voting power by reason of the
happening of any contingency); and (b) any partnership, association,
joint venture, or other entity in which such Person, directly or
indirectly through its Subsidiaries, has more than a fifty percent
(50%) equity interest at the time.
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"Supplemental Clarification Letter" shall mean a letter agreement
dated as of the Signing Date, entered into between West Coast and
Agent, in form and substance satisfactory to Agent, clarifying that the
Net Worth Maintenance Agreement continues to apply for the benefit of
Agent and Banks under this Agreement and the Loan Documents, and
clarifying certain matters pertaining to the Net Worth Maintenance
Agreement as set forth therein. The Supplemental Clarification Letter
is not intended by the parties to constitute an amendment or
modification of the Net Worth Maintenance Agreement, but rather merely
a supplemental clarification of its meaning as intended by the parties
thereto.
"Supplemental Signature Page" shall mean that certain page to be
executed by each of Obligor, Agent, and a New Bank, at the time such
New Bank becomes a Bank hereunder pursuant to Section 11.19 of this
Agreement, and substantially in the form of Exhibit S-1 attached
hereto. Each Supplemental Signature Page shall be deemed to be an
"Ancillary Document," as defined herein.
"Tangible Net Worth" shall mean (a) the aggregate of total
stockholders' equity less (b) the aggregate of any treasury stock, any
intangible assets, and any obligations due from stockholders,
employees, or affiliates plus (c) Permanent Subordinated Debt.
"Taxes" shall mean any tax based upon or measured by net or gross
income, gross receipts, sales, use, ad valorem, transfer, franchise,
withholding, payroll, employment, excise, occupation, premium or
property taxes, or conduct of business, together with any interest and
penalties, additions to tax and additional amounts imposed by any
federal, state, local, or foreign taxing authority upon any Person.
"Termination Event" shall mean, with respect to Obligor or an
ERISA Affiliate: (a) a Reportable Event; (b) the withdrawal of Obligor
or an ERISA Affiliate from a Plan during a plan year in which it was a
"substantial employer" as defined in Section4001(a)(2) of ERISA; (c)
the filing of a notice of intent to terminate a Plan or the treatment
of a Plan amendment as a termination under Section4041 of ERISA; (d)
the institution of proceedings to terminate a Plan under Title IV of
ERISA; or (e) any other event or condition which is reasonably likely
to constitute grounds under Section4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan.
"Total Debt" shall mean, with respect to any Person, the
aggregate of current liabilities and non-
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<PAGE> 35
current liabilities of such Person and, without duplication, Letter of
Credit Usage of such Person.
"UCC" shall mean the California Uniform Commercial Code, as
amended or supplemented from time to time, and any successor statute.
"Unmatured Event of Default" shall mean an event, act, or
occurrence which, with the giving of notice or the passage of time,
would become an Event of Default.
"Unpaid Drawings" shall mean, at any time, all drawings under any
Letter of Credit paid by the Issuing Bank with respect thereto, on
behalf of Banks, for which such Issuing Bank has not been reimbursed by
Borrower or funded by Loans pursuant to Sections 2.1 or 2.2 hereof.
"Usage" shall mean, on the date of any determination thereof, the
aggregate outstanding principal amount of the Loans plus Letter of
Credit Usage plus the Hedge Reserve.
"West Coast" shall mean West Coast Private Equity Partners, L.P.,
a Delaware limited partnership.
1.2 Construction. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular and to the singular
include the plural, the part includes the whole, the term "including" is not
limiting, and the term "or" has, except where otherwise indicated, the inclusive
meaning represented by the phrase "and/or." References in this Agreement to a
"determination" by Agent or Required Banks, as applicable, includes good faith
estimates by Agent or Required Banks, as applicable, in the case of quantitative
determinations, and good faith beliefs by Agent or Required Banks, as
applicable, in the case of qualitative determinations. The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this Agreement.
Article, section, subsection, clause, exhibit, and schedule references are to
this Agreement unless otherwise specified. Any reference in this Agreement, the
Notes, or any of the Ancillary Documents includes any and all alterations,
amendments, changes, extensions, modifications, renewals, supplements,
substitutions, or replacements thereto or thereof, as applicable. Any terms used
herein and not separately defined shall have the meanings ascribed thereto in
the UCC.
1.3 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP as in effect from time to
time, including applicable statements, bulletins, and interpretations issued by
the Financial Accounting Standards Board and bulletins, opinions,
interpretations, and statements issued by the American Institute of
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<PAGE> 36
Certified Public Accountants or its committees. When used herein, the term
"financial statements" shall include the notes and schedules thereto. All
financial statements required hereunder shall be prepared for Obligor, unless
otherwise indicated, both (a) on a combined and combining basis (and, in respect
of BCE, without consolidation of CFAC), and (b) with respect to BCE and its
Subsidiaries (including CFAC, Central Ram, and Borrower) on a consolidated and
consolidating basis. All and computations relating to all financial covenants
hereunder shall be made for Obligor on a combined and combining basis (and, in
respect of BCE, without consolidation of CFAC), unless otherwise indicated.
1.4 Disclosure Statement. The Disclosure Statement delivered by Obligor
pursuant hereto and all of the exhibits and schedules attached to this Agreement
shall be deemed incorporated herein by reference. Any Disclosure Statement items
pertaining to Obligor shall be broken out separately for Borrower and BCE.
ARTICLE II
AMOUNT AND TERMS OF LOANS
2.1 Revolving Credit Facility.
(a) Subject to the terms and conditions hereof:
(i) each Bank severally agrees to make Loans to Borrower, pro
rata in proportion of its share of the Commitment, from the Closing
Date to but not including the Maturity Date, at such times and in such
amounts as Borrower may request in accordance with Section 2.8 hereof;
and
(ii) Borrowings under the Revolving Credit Facility may be
borrowed, repaid and reborrowed.
(b) In no event and at no time shall:
(i) the aggregate principal amount at any time outstanding of
all Loans made by any Bank exceed such Bank's pro rata share of an
amount equal to: (A) the Commitment then in effect; minus (B) the sum
of (x) Letter of Credit Usage plus (y) the Hedge Reserve;
(ii) the aggregate principal amount of any Borrowing requested
to be made exceed the positive difference between: (A) the Borrowing
Base then in effect; minus (B) the Usage immediately prior to such
Borrowing; and
(iii) the Usage exceed the Borrowing Base then in effect.
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(c) In the event that, at any time:
(i) the Usage exceeds the then existing amount of the
Borrowing Base, then, and in each such event, Borrower shall repay
within one (1) Business Day the amount of such excess to Agent to be
distributed to Banks based upon their pro rata shares of the Basic Rate
Loans then outstanding, or, in the event that no Basic Rate Loans are
then outstanding, to be held as cash collateral in a Cash Collateral
Account for the repayment at maturity of Eurodollar Rate Loans and
contingent reimbursement obligations of Borrower with regard to Letters
of Credit; or
(ii) the Usage exceeds an amount equal to the then existing
amount of the Commitment, Borrower shall immediately repay the amount
of such excess to Agent to be distributed to Banks based upon their pro
rata shares of the Basic Rate Loans then outstanding, or, in the event
that no Basic Rate Loans are then outstanding, to be held as cash
collateral in a Cash Collateral Account for the repayment at maturity
of Eurodollar Rate Loans and contingent reimbursement obligations of
Borrower with regard to Letters of Credit.
(d) Subject to Section 2.1(b) hereof, (i) each Borrowing of Basic
Rate Loans shall be in the minimum principal amount of One Hundred Thousand
Dollars ($100,000) and in an integral multiple of Fifty Thousand Dollars
($50,000), and (ii) each Borrowing of Eurodollar Rate Loans shall be in the
minimum principal amount of Five Million Dollars ($5,000,000) and in an integral
multiple of One Million Dollars ($1,000,000).
(e) As part of the Revolving Credit Facility and subject to the
terms and conditions hereof, Borrower may request, in accordance with Section
2.2 hereof, that an Issuing Bank issue Letters of Credit for the account of
Borrower. Notwithstanding the foregoing, no Issuing Bank shall issue any Letter
of Credit if, after giving effect to such issuance, the Letter of Credit Usage
would exceed the Letter of Credit Amount.
2.2 Letters of Credit.
(a) Immediately upon the issuance of each Letter of Credit
hereunder, each Bank shall be deemed to and hereby agrees to have irrevocably
purchased from the Issuing Bank a participation in such Letter of Credit and any
drawing thereunder in an amount equal to such Bank's pro rata share of the
Commitment to the same extent and with the same effect as if such Bank had
issued such Letter of Credit. In the event of any drawing under any Letter of
Credit, Issuing Bank shall provide notice to Borrower of such drawing and
Borrower shall immediately pay Agent the amount of such drawing. In the event
Borrower fails so to pay Agent, each Bank shall, pursuant to the
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provisions of Section 2.10(c) hereof, remit to Agent, in immediately available
funds, an amount which is in the same proportion to the amount drawn under the
Letter of Credit as such Bank's share of the Commitment, plus interest on such
amount, at the rate set forth in Section 2.10(c) hereof, payable from the date
of such drawing to the date such Bank initiates payment of such amount to Agent.
Borrower and Banks hereby agree that amounts paid by or on behalf of Banks under
and pursuant to each Letter of Credit shall constitute Basic Rate Loans made
under Section 2.1. Each Bank's obligation to make the Basic Rate Loans referred
to in this Section 2.2 shall continue despite the occurrence of any Event of
Default or Unmatured Event of Default or any inability of Borrower to require
that such Bank fund its pro rata share of the Commitment, including any
inability resulting from the operation of Section 365(c)(2) of the federal
Bankruptcy Code or otherwise.
(b) Each Letter of Credit is to be issued only upon satisfaction of
the following conditions:
(i) Borrower shall be entitled under Section 2.1 to a
Borrowing in an amount equal to or greater than the face amount of the
Letter of Credit on the date of the issuance thereof;
(ii) all conditions to Loans specified in Sections 3.1 and 3.2
hereof, with respect to Letters of Credit to be issued on the Closing
Date, and in Section 3.3, and to the extent applicable, Section 3.4
hereof, with respect to all Letters of Credit, shall have been
satisfied on the date of the issuance of each Letter of Credit;
(iii) Borrower shall have submitted an application and executed
such other documents, instruments, and agreements as may be required by
the Issuing Bank, all in form and substance reasonably satisfactory to
such Issuing Bank;
(iv) If the requested Letter of Credit is a Standby Letter of
Credit, the issuance of such Standby Letter of Credit shall be in
compliance with Section 6.14; and
(v) After giving effect to the issuance of the requested
Letter of Credit, Letter of Credit Usage shall not exceed the Letter of
Credit Amount.
(c) Borrower shall pay to Agent fees with regard to Letters of
Credit as follows: (i) for the account of the Banks, fees at the Issuing Bank's
then prevailing rate shall be payable quarterly in arrears in connection with
each Commercial Letter of Credit; provided, however, that in no event shall such
fee for the initial quarter be less than Two Hundred Fifty Dollars ($250); (ii)
for the account of the Banks, a
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non-refundable fee equal to 2.375 percent per annum of the Stated Amount of each
Standby Letter of Credit, pro rated over the tenor of such Standby Letter of
Credit, shall be payable quarterly in advance; provided, however, that in no
event shall such fee for the initial quarter be less than Five Hundred Dollars
($500); and (iii) for the account of the Issuing Bank, such other fees of the
types currently charged by the Issuing Bank in connection with Letters of
Credit, including amendment fees, negotiation fees, and documentary and
processing charges, in accordance with the Issuing Bank's then prevailing rates
for such fees. With respect to any letter of credit fee paid by Borrower to BofA
(or Security Pacific National Bank as its predecessor) under the Prior Loan
Agreement that related in part to periods of time after the Closing Date,
Borrower shall be entitled to credit for the portion of such fee paid under the
Prior Loan Agreement that is allocable to such remaining period of time after
the Closing Date with respect to which such fee was paid, with such credit to
pertain to such remaining period of time after the Closing Date with respect to
the corresponding Letter of Credit deemed issued hereunder on the Closing Date,
and BofA shall share such credited portion of such fee with the other Banks in
accordance with the provisions of this Agreement as if such credited portion of
such fee had been paid by Borrower hereunder, provided that Borrower shall not
be entitled to any rebate (or to any credit with respect to any other Letter of
Credit fee or any other period of time) by reason of any differential in letter
of credit pricing between this Agreement and the Prior Loan Agreement.
(d) Each Letter of Credit shall be administered by the Issuing Bank
on behalf of all Banks. Except for fees paid pursuant to Section 2.2(c)(iii),
fees paid to Agent with regard to Letters of Credit shall be allocated and paid
by Agent to all Banks pro rata according to their share of the Commitment.
(e) If, for any reason, a Bank fails to pay its liability on a
Letter of Credit in accordance with the provisions of this Section 2.2, then the
Issuing Bank shall be automatically subrogated to the right of such defaulting
Bank to repayment, in full, of the Basic Rate Loan created by virtue of a
drawing on a Letter of Credit prior to distribution of any repayments to the
defaulting Bank.
(f) Letters of Credit issued pursuant to this Section 2.2 shall
have an expiration date not later than (i) twelve (12) months from the date of
issuance and (ii) the Maturity Date. Letters of Credit issued on or after the
Closing Date shall not contain automatic renewal clauses, except that one
Standby Letter of Credit in a face amount of not more than $350,000 issued for
the benefit of Borrower's insurer may contain an automatic renewal clause, so
long as the Issuing Bank has the right to give notice of non-renewal no less
frequently than once a year.
(g) In determining whether to pay under a Letter of Credit, the
Issuing Bank shall be responsible to determine
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<PAGE> 40
only that the documents and certificates required to be delivered under that
Letter of Credit have been delivered and that they comply on their face with the
requirements of the Letter of Credit.
(h) To the extent any application or reimbursement agreement that
is executed or entered into in connection with a Letter of Credit contains terms
that are inconsistent with the terms of this Agreement, the terms of this
Agreement shall control.
2.3 Authorization and Issuance of the Notes. Borrower has authorized
the issuance of Notes in the aggregate principal amount of Sixty Million Dollars
($60,000,000). On the Signing Date, Borrower shall issue a separate Note,
payable to the order of each Bank, substantially in the form of Exhibit N-1
attached hereto, with appropriate insertions. Each such Note shall be in an
amount equal to such Bank's pro rata share of the Commitment in effect on the
Signing Date. Borrower shall deliver each such Note to Agent for delivery to the
appropriate Bank. The Notes delivered to each Bank shall evidence the
outstanding principal balance of the Loans made, from time to time, by such Bank
to Borrower, together with interest thereon.
2.4 Rate Designation. Borrower shall designate each Borrowing requested
by it as a Basic Rate Borrowing or a Eurodollar Rate Borrowing, in the Notice of
Borrowing given to Agent in accordance with Section 2.8 hereof.
2.5 Interest Rates; Payment of Principal and Interest.
(a) (i) The obligation of Borrower to repay all of the Loans shall
be evidenced by the Notes.
(ii) All of the Notes shall be payable to the order of each
Bank at Agent's office in accordance with Section 2.22(a). Payments
made by Borrower to Agent for the account of the Banks shall be deemed
made to each Bank and shall constitute satisfaction of Borrower's
obligations to each Bank with respect to the Loans so repaid upon
receipt by Agent of such payments as are made in compliance with the
terms of this Section 2.5(a) and with Section 2.22(a). Agent shall,
upon either the Domestic Business Day which is the day upon which Agent
receives a payment from Borrower if Agent shall have received such
payment from Borrower by 10:00 a.m., California time, on that day, or
upon the next Domestic Business Day following the Domestic Business Day
upon which Agent receives a payment from Borrower if such payment is
received after 10:00 a.m., California time, initiate payment to each
Bank of its pro rata
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share of the Loans repaid. If Agent shall initiate such payment to a
Bank later than the date set forth in the immediately preceding
sentence, then Agent shall pay to such Bank, in addition to its pro
rata share of the Loans repaid, interest on such amount at the Federal
Funds Rate.
(b) Subject to Section 2.6 hereof, each Basic Rate Loan shall bear
interest, upon the unpaid principal balance thereof, from and including the date
advanced or converted to but excluding the date of repayment or conversion
thereof, at a fluctuating rate, per annum, equal to the Basic Rate. Interest due
on Basic Rate Loans shall be due and payable monthly, in arrears, commencing on
the Initial Basic Rate Loan Interest Payment Date, continuing on the first day
of each calendar month thereafter, and on the Maturity Date.
(c) Subject to Section 2.6 hereof, each Eurodollar Rate Loan shall
bear interest, upon the unpaid principal balance thereof, from and including the
date advanced, converted, or continued to but excluding the date of repayment or
conversion thereof, at a rate, per annum, equal to the applicable Eurodollar
Rate. Interest due on Eurodollar Rate Loans shall be due and payable, in
arrears, on each Interest Payment Date applicable to that Eurodollar Rate Loan.
In the event of a prepayment by Borrower of all or part of any Eurodollar Rate
Loan, accrued interest on the amount so prepaid shall be due and payable on the
date of such prepayment. Notwithstanding anything to the contrary contained in
this Agreement, Borrower shall not have more than ten (10) Eurodollar Rate
Borrowings outstanding at any one time.
(d) Notwithstanding anything to the contrary contained in this
Agreement, Borrower shall not be obligated to pay, and Banks shall not be
entitled to charge, collect, receive, reserve, or take interest ("interest"
being defined as the aggregate of all charges which constitute interest under
applicable law that are contracted for, charged, reserved, received, or paid) in
excess of the maximum rate allowed by applicable law. During any period of time
in which the interest rate specified herein exceeds such maximum rate, interest
shall accrue and be payable at such maximum rate; provided, however, that, if
the interest rate declines below such maximum rate, interest shall continue to
accrue and be payable at such maximum rate (so long as there remains any unpaid
principal with respect to the Loans) until the interest that has been paid
hereunder and under the Notes equals the amount of interest that would have been
paid if interest had at all times accrued and been payable at the interest rate
specified in this Section 2.5 without being limited to the maximum rate
specified in this Section 2.5(e).
For purposes of this Section 2.5(e), the term "applicable law"
shall mean that law in effect from time to time and applicable to the loan
transaction between Borrower and Banks which lawfully permits the charging and
collection of the highest permissible, lawful non-usurious rate of interest on
such loan transaction and this Agreement, including laws of the State of
California and, to the extent controlling, laws of the United States of America.
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(e) In the event that, as a result of the operation of any
provision of this Agreement, Borrower repays, in whole or in part, a Eurodollar
Rate Loan prior to the expiration of the Interest Period applicable thereto,
Borrower shall, concurrently with the repayment of any such Loan, in whole or in
part, pay any and all accrued and unpaid interest on the amount repaid.
2.6 Default Rate. Upon the occurrence and during the continuance of a
Designated Event of Default, at the option of Required Banks, all Secured
Indebtedness shall bear interest, without affecting any of the other rights and
remedies provided for herein or in the Notes, at a rate (the "Default Rate")
equal to the lesser of: (a) (i) for all amounts other than Eurodollar Rate
Loans, at the Basic Rate plus two and one-half (2-1/2) percentage points; and
(ii) as to all Eurodollar Rate Loans, at the Eurodollar Rate plus two and
one-half (2-1/2) percentage points; and (b) the Highest Lawful Rate. Agent will
endeavor promptly to notify Borrower of any election by Required Banks to invoke
the Default Rate, but any failure or delay of Agent to provide such notice shall
not impose liability on Agent and shall not affect the effectiveness of any such
election.
2.7 Computation of Interest and Fees.
(a) All computations of Fees and computations of interest with
respect to the Loans shall be calculated on the basis of a year of three hundred
sixty (360) days for the actual number of days elapsed in such period. Interest
shall accrue from the first day of the making of a Loan (or the date on which
interest or fees or other payments are due hereunder, if applicable) to, but
excluding, the date of repayment of such Loan (or the date of the payment of
interest or fees or other payments, if applicable) in accordance with the
provisions hereof; provided, however, that if a Loan is repaid on the same day
on which it is made, then one (1) day's interest shall be paid on that Loan.
(b) Agent shall give prompt notice to Borrower and Banks of each
determination of the Basic Rate or the Eurodollar Rate, and of each change in
the Basic Rate applicable to any Loan outstanding hereunder. Each such
determination shall be conclusive in the absence of manifest error. The failure
of Agent to give any such notice specified in this subsection shall not affect
Borrower's obligation to pay such interest.
2.8 Request for Borrowing.
(a) Each Basic Rate Borrowing shall be made on a Domestic Business
Day and each Eurodollar Rate Borrowing shall be made on a Eurodollar Business
Day.
(b) Each Borrowing shall be made upon written notice, by way of a
Notice of Borrowing, in the form of Exhibit N-2, given by telex, telefacsimile
transmission, mail, or
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personal service, delivered to Agent at Agency Management Services # 5596, Bank
of America NT&SA, 1455 Market Street, 12th Floor, San Francisco, California
94103, and confirmed by telephone, as follows:
(i) for a Basic Rate Borrowing, Agent shall be given notice
on or before the Domestic Business Day on which such Borrowing is to be
made, and such notice shall specify that a Basic Rate Borrowing is
requested and state the amount thereof (subject to the provisions of
this Article II); provided, however, if Borrower shall fail to specify
the type of Borrowing requested, Borrower shall be deemed to have
requested a Basic Rate Borrowing;
(ii) for a Eurodollar Rate Borrowing, Agent shall be given
notice at least three (3) Eurodollar Business Days prior to the day on
which such Borrowing is to be made, and such notice shall specify that
a Eurodollar Rate Borrowing is requested and shall state the amount
thereof and the proposed Interest Period therefor (subject to the
provisions of this Article II); and
(iii) For the issuance of a Letter of Credit, Agent and the
Issuing Bank shall be given notice at least two (2) Domestic Business
Days prior to the date on which such Letter of Credit is to be issued,
or such shorter period of time as is acceptable to the Issuing Bank;
provided, however, that any such notice period shall be sufficiently
long as is necessary to satisfy the conditions set forth in Section
2.2, as applicable, with respect to such issuance. Such notice shall
specify that a Letter of Credit issuance is requested and shall state
the amount thereof (subject to the provisions of this Article II).
(c) If the notice provided for in clause (b) is received by Agent
not later than 9:00 a.m., California time, on a Domestic Business Day or
Eurodollar Business Day, as applicable, such day shall be treated as the first
Domestic Business Day or Eurodollar Business Day, as applicable, of the required
notice period. In any other event, such notice will be treated as having been
received immediately before 9:00 a.m., California time, of the next Domestic
Business Day or Eurodollar Business Day, as applicable.
(d) In lieu of delivering the above-described Notice of Borrowing,
Borrower, by one of its Responsible Officers or any other individual authorized
in writing to act on its behalf, may give Agent telephonic notice requesting a
Borrowing to be disbursed pursuant to the terms of Section 2.21 hereof by the
required time of any proposed Borrowing under this Section 2.8; provided,
however, that such notice shall be immediately confirmed in writing by
telefacsimile delivery of a Notice of
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Borrowing to Agent. Agent and Banks shall incur no liability to Borrower and
Agent shall incur no liability to Banks in acting upon any telephonic notice
referred to above which Agent believes in good faith to have been given by a
Responsible Officer or other individual authorized to act on behalf of Borrower
or for otherwise acting in good faith under this Section 2.8 and in making any
Loans in accordance with this Agreement pursuant to any telephonic notice.
Subject to Section 2.8(e), any Notice of Borrowing (or telephonic notice in lieu
thereof) shall be irrevocable and Borrower shall be bound to make a Borrowing in
accordance therewith.
(e) In the event that Borrower determines that, as a result of a
Basic Rate Borrowing or a Eurodollar Rate Borrowing to be made pursuant to a
pending Notice of Borrowing or Notice of Conversion/Continuation, or a Letter of
Credit to be issued pursuant to a pending Notice of Borrowing, (i) Borrower
shall be required to pay or reimburse any amounts to any Bank pursuant to
Sections 2.15, 2.17, or 2.18 hereof, or (ii) any Bank shall not be required to
fund a requested Eurodollar Rate Loan pursuant to Section 2.16 hereof, then
Borrower shall be entitled to withdraw such Notice of Borrowing or Notice of
Conversion/Continuation, as to such Bank or all Banks, without penalty by giving
notice thereof to Agent (and the Issuing Bank, if applicable); provided,
however, that such notice of withdrawal shall be given prior to the issuance of
any affected Letter of Credit, prior to the day on which any affected Basic Rate
Borrowing was intended to be made, and at least three (3) Eurodollar Business
Days prior to the day on which any affected Eurodollar Rate Borrowing was
intended to be made; provided further, however, that to the extent that any
affected Bank shall have transferred funds to Agent in connection with such
affected Borrowing prior to the provision of such notice of withdrawal by
Borrower, such Bank shall be entitled to the immediate return of such amount by
Agent and to recover on demand from Borrower interest on such amount until paid
at the customary rate set by such Bank for the correction of errors among banks
for the first three (3) Domestic Business Days and, thereafter, at the Basic
Rate. In the event any such notice of withdrawal affects less than all Banks,
the affected Notice of Borrowing or Notice of Conversion/Continuation shall be
deemed to be a request for a Basic Rate Loan from each affected Bank in the
amount of its pro rata share of such Borrowing.
2.9 Conversion or Continuation.
(a) Subject to the provisions of clause (d) of this Section 2.9 and
Section 2.16, Borrower shall have the option to: (i) convert all or any part of
its outstanding Loans equal to One Hundred Thousand Dollars ($100,000), and in
integral multiples of Fifty Thousand Dollars ($50,000) in excess of such amount,
to a Basic Rate Loan;(ii) convert all or any part of its outstanding Loans in an
amount equal to Five Million Dollars ($5,000,000), and in integral multiples of
One Million Dollars ($1,000,000) in excess of such amount, to a Eurodollar Rate
Loan;
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and (iii) upon the expiration of any Interest Period applicable to a Eurodollar
Rate Loan, continue all of such Eurodollar Rate Loan as a Eurodollar Rate Loan,
and the succeeding Interest Period of such continued Loan shall commence on the
expiration date of the Interest Period previously applicable thereto; provided
further, however, that a Eurodollar Rate Loan may only be converted or
continued, as the case may be, on the expiration date of the Interest Period
applicable thereto; provided further, however, that no outstanding Loan may be
continued as, or be converted into, a Eurodollar Rate Loan when any Event of
Default has occurred and is continuing; provided further, however, that, if,
before the expiration of an Interest Period of a Eurodollar Rate Loan, Borrower
fails to deliver the appropriate Notice of Conversion/Continuation or telephonic
notice in respect thereof, such Eurodollar Rate Loan shall automatically be
converted to a Basic Rate Loan.
(b) Notwithstanding any provisions of the foregoing paragraph of
this Section 2.9 to the contrary, Borrower may convert a Eurodollar Rate Loan
into a Basic Rate Loan prior to the expiration date of the Interest Period
applicable thereto upon payment to each Bank, pursuant to the provisions of
Section 2.15 hereof, of all costs, expenses and losses incurred by such Bank as
a result of the timing of such conversion.
(c) Borrower shall deliver a Notice of Conversion/Continuation, in
the form of Exhibit N-3, with respect to a conversion or continuation of one of
its Loans to Agent no later than 9:00 a.m., California time, on a Domestic
Business Day (in the case of a conversion to a Basic Rate Loan), and at least
three (3) Eurodollar Business Days in advance of the proposed
conversion/continuation date (in the case of a conversion to, or a continuation
of, a Eurodollar Rate Loan). A Notice of Conversion/Continuation shall specify:
(i) the proposed conversion/continuation date (which shall be a Domestic
Business Day or a Eurodollar Business Day, as applicable); (ii) the amount of
the Loan to be converted/continued; (iii) the nature of the proposed
conversion/continuation; and (iv) in the case of a conversion to, or
continuation of, a Eurodollar Rate Loan, the requested Interest Period.
(d) In lieu of delivering the above-described Notice of
Conversion/Continuation, Borrower, by any of its Responsible Officers or any
other individual authorized in writing to act on behalf of Borrower, may give
Agent telephonic notice by the required time of any proposed
conversion/continuation under this Section 2.9; provided, however, that such
notice shall be immediately confirmed in writing by telefacsimile delivery of a
Notice of Conver- sion/Continuation to Agent. Agent and Banks shall incur no
liability to Borrower in acting upon any such telephonic notice which Agent
believes in good faith to have been given by a Responsible Officer or other
individual authorized to act on behalf of Borrower, or for otherwise acting in
good faith under this Section 2.9 and in converting/continuing pursuant to any
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<PAGE> 46
telephonic notice. Subject to Section 2.8(e), any Notice of
Conversion/Continuation (or telephonic notice in lieu thereof) shall be
irrevocable and Borrower shall be obligated to convert or continue in accordance
therewith.
(e) No Borrowing (or portion thereof) may be converted into, or
continued as, a Eurodollar Rate Borrowing with an Interest Period that ends
after the Maturity Date.
2.10 Loans by Banks.
(a) Agent shall promptly notify each Bank of that Bank's pro rata
portion of a Borrowing requested pursuant to Section 2.8 hereof. Not later than
12:00 noon, California time, on the date specified in such notice as the date on
which the Borrowing so requested is to be made, each Bank, subject to the terms
and conditions hereof, shall initiate a transfer of funds to make its pro rata
portion of the Borrowing available in immediately available funds, to Agent at
its office located at Agency Management Services # 5596, Bank of America NT&SA,
1455 Market Street, 12th Floor, San Francisco, California 94103.
(b) Each Bank's obligation to make any Loan pursuant hereto is
several, and not joint or joint and several, and is not conditioned upon the
performance by each, any, or all of the other Banks of their obligations to make
Loans. The failure by any Bank to perform its obligation to make Loans will
neither increase any other Bank's pro rata portion of the Commitment nor relieve
any other Bank of its obligation to make Loans pursuant to its share of the
Commitment. For purposes of the foregoing, each Bank's obligations to make Loans
shall be deemed to include such Bank's obligations with regard to participation
in Letters of Credit pursuant to Section 2.2(a).
(c) An Issuing Bank shall promptly notify Agent and each Bank of a
drawing made under a Letter of Credit which has not been repaid by Borrower
pursuant to Section 2.2(a). Not later than 12:00 noon, California time, on the
date specified in such notice as the date on which such drawing is to be paid,
each Bank, subject to the terms and conditions hereof, shall initiate a transfer
of funds to make its pro rata portion of such drawing available, in immediately
available funds, to Agent. In the event that the Issuing Bank is unable to
notify Banks in time sufficient to permit Banks to timely remit their portion of
the drawing to the Issuing Bank, then each Bank shall be required to initiate a
transfer of funds to make payment to Agent of its pro rata portion of the
drawing under the Letter of Credit, together with interest thereon accrued from
the date of the drawing to the date on which such Bank initiates payment to
Agent at the rate set forth in the following sentence, by no later than 12:00
noon, California time, on the Domestic Business Day immediately following the
date of receipt of the notice from the Issuing Bank. In the event that any Bank
fails to make any payment to Agent, as specified above, the Issuing Bank shall
be entitled to
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<PAGE> 47
recover such amount on demand from such Bank together with interest thereon
until paid at the Federal Funds Rate.
2.11 Termination or Reduction of Commitment.
(a) The Commitment shall terminate on the Maturity Date, and any
Loans then outstanding, together with any and all interest accrued and unpaid
thereon, shall be immediately due and payable, without demand, on such date.
(b) Borrower shall have the right, at any time and from time to
time, to reduce permanently, in whole or in part, the unused portion of the
Commitment. Borrower shall give Agent not less than three (3) Domestic Business
Days prior written notice designating the date (which shall be a Domestic
Business Day) of such reduction and the amount of such reduction. Such reduction
shall be effective on the date specified in Borrower's notice given in
compliance herewith. Any reduction shall be in a minimum amount of Five Hundred
Thousand Dollars ($500,000), and an integral multiple of Five Hundred Thousand
Dollars ($500,000). Any reduction of the Commitment pursuant to this Section
2.11 shall reduce each Bank's pro rata share of the Commitment.
2.12 Voluntary Prepayments. Borrower may prepay Loans at any time, in
whole or in part, without penalty or premium, subject to Section 2.15; provided,
however, that (a) with regard to the prepayment of any Basic Rate Loan, Borrower
shall provide prior written notice to Agent not later than 9:00 a.m., California
time, on the intended date of prepayment, which date of prepayment shall be a
Domestic Business Day; and (b) with regard to the prepayment of any Eurodollar
Rate Loan, Borrower shall provide prior written notice to Agent not later than
9:00 a.m., California time, three (3) Eurodollar Business Days prior to the
intended date of prepayment, which date of prepayment shall be a Eurodollar
Business Day. Each prepayment of Basic Rate Loans shall be in the minimum
principal amount of One Hundred Thousand Dollars ($100,000) and, thereafter, in
integral multiples of Fifty Thousand Dollars ($50,000), provided, however that,
if the outstanding principal balance of such Loans is less than such amount, the
minimum prepayment amount shall be the entire outstanding principal balance
thereof. Each prepayment of Eurodollar Rate Loans shall be in the minimum
principal amount of Five Million Dollars ($5,000,000) and in an integral
multiple of One Million Dollars ($1,000,000), provided, however that, if the
outstanding principal balance of such Loans is less than such amount, the
minimum prepayment amount shall be the entire outstanding principal balance
thereof.
2.13 Fees.
(a) Borrower shall pay a fee (the "Commitment Fee") to Agent, to
be distributed by Agent to each Bank based upon such Bank's pro rata share of
the Commitment. The Commitment Fee shall be payable quarterly in arrears for
each
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calendar quarter, commencing on October 1, 1992 and continuing on the first day
of each April, July, October, and January thereafter so long as the Commitment
or any part thereof is outstanding. The Commitment Fee payable with respect to
any calendar quarter shall be a dollar amount equal to (i) 0.00375, times (ii)
the number of days in such calendar quarter, times (iii) the average daily
amount during such calendar quarter of the difference between the Commitment and
Usage, (iv) divided by 360.
(b) On the Signing Date, Borrower shall pay to Agent a fee (the
"Participation Fee") in the amount of $25,000.00, to be distributed by Agent to
each Bank based upon such Bank's pro rata share of the Commitment.
(c) On the dates provided for in the Fee Letter, Borrower shall
pay to Agent each of the fees set forth in the Fee Letter in accordance with the
terms set forth therein.
2.14 Replacement of Banks. In the event that (a) Borrower shall be
required to pay or reimburse any amounts to any Bank pursuant to Sections 2.15,
2.17, or 2.18 hereof, or (b) any Bank shall not be required to fund Eurodollar
Rate Loans pursuant to Section 2.16 hereof, then Borrower shall have the right,
subject to the prior consent of Agent (which consent shall not be unreasonably
withheld) and Required Banks (which consent shall not be unreasonably withheld),
to replace such Bank (the "Replaced Bank") with another solvent and reputable
financial institution which (i) is willing to assume all rights and obligations
of the Replaced Bank under and pursuant to this Agreement, (ii) will be required
to be paid or reimbursed for amounts pursuant to Sections 2.15, 2.17, and 2.18
hereof which are less than those of the Replaced Bank, and (iii) will not be
relieved of its obligations to fund Eurodollar Rate Loans pursuant to Section
2.16. Any such replacement of a Bank shall be made pursuant to the terms of
Section 11.8(b) hereof, including the payment of the assignment fee set forth
therein.
2.15 Eurodollar Costs. Borrower shall reimburse each Bank (by payment
to Agent for the account of such Bank) for any increase in its costs which shall
include Taxes (other than Taxes imposed on, or measured by, or with respect to
overall net income or gross receipts of such Bank (including any applicable
withholding Taxes) and any Taxes imposed by means of withholding at the source),
fees, or charges (other than any increased costs which are already included in
the LIBOR Reserve Percentage), or any loss or expense (including, with respect
to any event contemplated by clauses (d) and (e) below, any loss or expense
incurred by reason of the liquidation or re-employment of deposits or other
funds acquired by such Bank to fund or maintain the outstanding principal amount
of its Eurodollar Rate Loans) incurred by it or any reduction in any amount
receivable by such Bank hereunder, which costs, losses, expenses, or any
reduction directly or indirectly results from the making of, the continuation
of, the conversion into, or the funding for any
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Eurodollar Rate Loan, or the making available of its share of the Commitment due
to:
(a) any change occurring or implemented after the date of this
Agreement, in any law, regulation, or treaty or the interpretation thereof by
any governmental or monetary authority (irrespective of whether having the force
of law) including any of the foregoing which imposes or modifies any reserve,
special deposit, minimum capital, capital ratio, or similar requirements (other
than those provided for in Section 2.18 hereof and other than those included in
the calculations of Base LIBOR) relating to any extensions of credit, or any
deposits with, or other liabilities of, such Bank relating to loans based upon
Base LIBOR;
(b) any change occurring or implemented after the date of this
Agreement, in the application of any law, regulation, or treaty or the
interpretation thereof by any governmental or monetary authority (irrespective
of whether having the force of law) including any of the foregoing which imposes
or modifies any reserve, special deposit, minimum capital, capital ratio, or
similar requirements (other than those provided for in Section 2.18 hereof and
other than those included in the calculations of Base LIBOR) relating to any
extensions of credit, or any deposits with, or other liabilities of, such Bank
relating to loans based upon Base LIBOR;
(c) compliance by such Bank with any request or directive
occurring or implemented after the date of this Agreement (irrespective or
whether having the force of law) of any monetary or fiscal agency or authority
including any of the foregoing which imposes or modifies any reserve, special
deposit, minimum capital, capital ratio, or similar requirements (other than
those provided for in Section 2.18 hereof and other than those included in the
calculations of Base LIBOR) relating to any extensions of credit, or deposits
with, or other liabilities of, such Bank relating to loans based upon Base
LIBOR;
(d) except as otherwise expressly provided for herein, any payment
or conversion of a Eurodollar Rate Loan at any time prior to the end of the
applicable Interest Period, whether as a result of an optional prepayment, a
mandatory prepayment, a payment as a result of acceleration, or otherwise; or
(e) except as otherwise expressly provided for herein, any failure
by Borrower to make or continue a Eurodollar Rate Borrowing, or to convert a
Borrowing into a Eurodollar Rate Borrowing, after giving Agent a Notice of
Borrowing or a Notice of Conversion/Continuation (or telephonic notice in
respect thereof), as applicable (including the failure to satisfy the conditions
precedent specified in Article III of this Agreement).
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For the purposes of this Section 2.15, in attributing such Bank's
general costs or reduction in amounts available relating to its eurocurrency
operations to any transaction under this Agreement, or averaging any costs over
a period of time, such Bank may use any reasonable attribution or averaging
methods which it deems appropriate and practical. Without limiting the
generality of the foregoing, any attribution or determination made by any Bank
pursuant to this Section 2.15 may be made on the assumption and as if such Bank
had funded its Eurodollar Rate Loans by accepting matching deposits in the
London interbank market, without requiring any Bank to demonstrate whether it in
fact accepted such deposits. Such Bank shall notify Borrower of the amount due
such Bank pursuant to this Section 2.15 in respect of any Eurodollar Rate Loan
as soon as practicable but in any event within forty-five (45) days after the
last day of the applicable Interest Period and Borrower shall pay to such Bank
the amount due within fifteen (15) days of its receipt of such notice. If
requested by Borrower, a certificate specifying the basis for claiming amounts
payable under this Section and showing the computation thereof in reasonable
detail shall be submitted by such Bank to Borrower prior to the date on which
Borrower is to make any payment due pursuant to this Section, and such
certificate shall be conclusive in the absence of manifest error.
2.16 Special Eurodollar Circumstances.
(a) In the event that any change occurring or implemented after
the date of this Agreement in any law, regulation, treaty, or directive, or in
the interpretation or application of any currently existing law, regulation,
treaty, or directive, shall at any time in the reasonable opinion of any Bank
make it unlawful or impractical (a "Eurodollar Illegality") for such Bank to
fund or maintain a Eurodollar Rate Loan in the eurodollar market or to continue
such funding or maintaining, or to determine or charge interest rates based upon
the Eurodollar Rate, such Bank shall as soon as practicable give notice of such
circumstances to Borrower, Agent, and each other Bank and: (i) in the case of
any Eurodollar Rate Loan which is outstanding, Borrower shall, if requested by
such Bank, prepay (without penalty or premium) such Bank's Eurodollar Rate Loan
on or before the date specified in such request, together with interest accrued
and unpaid thereon, and the date so specified shall be deemed to be the last day
of the term of that Eurodollar Rate Loan and, concurrently with any such
prepayment, such Bank shall make a Basic Rate Loan to Borrower in a principal
amount equal to the principal amount of the Eurodollar Rate Loan so prepaid; and
(ii) such Bank shall not be obligated to make any further Eurodollar Rate Loans
to Borrower until such Bank shall determine that it would no longer be unlawful
or impractical to do so. In the event that any Bank determines at any time
following the giving of notice pursuant to this clause that such Bank may
lawfully make Eurodollar Rate Loans, such Bank shall promptly give written
notice to Borrower and Agent (which notice Agent shall promptly transmit to each
Bank) of that determination,
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whereupon Borrower's right to request, and such Bank's obligation to make,
Eurodollar Rate Loans shall be restored.
(b) If a Eurodollar Illegality occurs with respect to a Bank, the
affected Bank shall, prior to giving the notice pursuant to clause (a) above,
make all reasonable efforts (which shall not require such Bank to incur a loss
or take any action which would be materially disadvantageous to it as determined
in its sole discretion) to make an assignment of its rights and delegation and
transfer of its obligations hereunder to another of its offices, branches, or
Affiliates for the purpose of causing such Eurodollar Illegality to cease to
exist so long as: (i) such assignment and delegation will not create another
Eurodollar Illegality; and (ii) such Bank shall be permitted under applicable
law to continue to hold Eurodollar Rate Loans pending such assignment and
delegation.
(c) If Agent determines (which determination shall be conclusive)
that quotations of interest rates for the relevant deposits referred to in the
definition of "Eurodollar Rate" are not being provided in the relevant amounts
or for the relevant maturities for purposes of determining the rate of interest
for fixing the Eurodollar Rate, then Agent shall give Borrower and Banks prompt
notice thereof, and, so long as such condition remains in effect, Banks shall
not be obligated to make any further or continue any Eurodollar Rate Loans, or
to convert any outstanding Loan into a Eurodollar Rate Loan and, Borrower shall,
at its option, either prepay (without penalty or premium) the affected
Eurodollar Rate Loans or convert (without penalty or premium) such Eurodollar
Rate Loans into Basic Rate Loans.
(d) During any period in which a Bank (an "Affected Bank") shall
not be obligated to make Eurodollar Rate Loans pursuant to clauses (a) or (c)
above, such Affected Bank shall instead make Basic Rate Loans and any Notice of
Borrowing requesting a Eurodollar Rate Loan shall be deemed to be a request for
a Basic Rate Loan from such Affected Bank in the amount of its pro rata share of
such Borrowing and a request for Eurodollar Rate Loans from the non-Affected
Banks for the balance of the Borrowing.
2.17 Taxes. All payments made by Borrower in connection with this
Agreement shall be made free and clear of, and without reduction for or on
account of, any present or future income, stamp, or other Taxes, levies,
imposts, duties, charges, fees, deductions, or withholdings, now or hereafter
imposed, levied, collected, withheld, or assessed by any country (or by any
political subdivision or taxing authority thereof or therein) other than
Excluded Taxes (as defined below) (hereinafter referred to as "Non-Excluded
Taxes"). For purposes of this Section 2.17, "Excluded Taxes" shall mean Taxes or
such other amounts payable on, or measured by or with respect to, overall net
income, franchise, or gross receipts of any Bank (including any applicable
withholding taxes) and any Taxes or such other amounts imposed by means of
withholding at the source imposed by:
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(a) the United States of America or any political subdivision or taxing
authority thereof or therein; or (b) any country in which any Bank's lending or
principal executive offices are located, or in which any Bank is organized or
has a permanent establishment or trade or business or any political subdivision
or taxing authority thereof or therein where such Taxes arise out of such Bank's
organization, presence, or trade or business in that country and not because of
any activity, transaction, or relationship that such Bank has with Borrower,
directly or indirectly. If any Non-Excluded Taxes are required to be deducted or
withheld from any such payments to any Bank (a "Tax Event"), the amounts of such
payments shall be increased to the extent necessary in order that the amount of
such payment to any such Bank (after payment of all Taxes) shall equal the
amount which would have been received by such Bank in the absence of any
Non-Excluded Taxes. Whenever any Non-Excluded Taxes are payable by Borrower, as
promptly as possible thereafter, Borrower shall send to Agent, for the account
of such Bank, a certified copy of the original official receipt, if any,
received by Borrower showing payment thereof. If Borrower fails to pay any Non-
Excluded Taxes when due to the appropriate taxing authority or fails to remit to
Agent, for the account of such Bank, the required receipts or other required
documentary evidence, Borrower shall indemnify such Bank for any incremental
Non- Excluded Taxes that may become payable by such Bank and all reasonable
costs and expenses related thereto (including reasonable attorneys' fees) as a
result of any such failure. If Borrower pays any Non-Excluded Taxes to the
appropriate taxing authority for the account of such Bank or pays any amount to
such Bank pursuant to the indemnification described in the preceding sentence,
and such Bank receives a refund of or credit for all or a portion of the
Non-Excluded Taxes with respect to which such payment was made, such Bank shall
pay to Borrower the amount of such refund or credit as soon as practicable
following the receipt thereof, unless an Event of Default shall have occurred
and be continuing, in which case such amount shall be applied in accordance with
the provisions of Section 7.2 hereof.
If a Tax Event occurs with respect to a Bank, the affected Bank
shall make all reasonable efforts (which shall not require such Bank to incur a
loss or otherwise suffer any disadvantage) to make, within thirty (30) days and
subject to the consent of Borrower, an assignment of its rights and delegation
and transfer of its obligations hereunder to another of its offices, branches,
or Affiliates for the purpose of avoiding the occurrence of future Tax Events.
2.18 Increased Capital Cost. If any Bank determines that the cost to
such Bank of maintaining its share of the Loans or the Commitment is increased
because of any law or regulation or any interpretation, directive, or request
(irrespective of whether having the force of law), of any foreign or domestic
court or governmental or monetary authority (which cost is incurred due to the
introduction, enactment, implementation, or enforcement after the date hereof of
any such law, regulation,
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directive, or request or any change therein or in the interpretation thereof
after the date of this Agreement), such Bank may, by written notice given to
Borrower as promptly as practicable but in any event within forty-five (45) days
after such Bank's learning of such increased costs, require Borrower to pay, on
demand, an amount equal to such Bank's additional cost (as determined by such
Bank) incurred with respect to the Loans or the Commitment during the fiscal
quarter such notice is given and incurred during each fiscal quarter thereafter.
Each such Bank shall state in reasonable detail in the notice required by this
Section 2.18 the cause and amount of such additional cost.
2.19 Funding Sources. Nothing herein shall be deemed to obligate any
Bank to obtain the funds to make any Loan in any particular place or manner and
nothing herein shall be deemed to constitute a representation by any Bank that
it has obtained or will obtain such funds in any particular place or manner.
2.20 Holidays. Any payments which would otherwise become due on a day
other than a Domestic Business Day shall instead become due on the next
succeeding Domestic Business Day and such extension shall be reflected in the
computation of any payments due hereunder on such adjusted date; provided,
however, if any such extension shall cause a Eurodollar Rate Loan to be due in
the next calendar month, then such amount shall be due on the next preceding
Eurodollar Business Day.
2.21 Place of Borrowings. All Borrowings made hereunder shall be
disbursed by credit to Borrower's deposit account maintained with Agent at
Agent's office located at Agency Management Services # 5596, Bank of America
NT&SA, 1455 Market Street, 12th Floor, San Francisco, California 94103, or as
may otherwise be agreed to between Borrower and Agent.
2.22 Time and Place of Payments.
(a) Borrower shall make each payment hereunder or on the Notes by
making, or causing to be made, the amount thereof available to Agent in Dollars
in immediately available funds at Agent's office located at Agency Management
Services # 5596, Bank of America NT&SA, 1455 Market Street, 12th Floor, San
Francisco, California 94103, not later than 10:00 a.m., California time, on the
day of payment (except in the case of (i) costs reimbursed pursuant to Section
2.15 hereof, and (ii) interest paid in respect of a Eurodollar Rate Borrowing as
to which any Bank shall have requested and received prepayment of a Eurodollar
Rate Loan and made a Basic Rate Loan in a principal amount equal to the
principal amount thereof pursuant to clause (a) of Section 2.16 hereof,
respectively, which shall be paid when due directly to the Bank entitled
thereto).
(b) Without limitation of any Bank's rights of setoff provided for
and contemplated by Section 11.15 hereof or by law, Agent shall have the right
to charge (i.e., debit) any account of Borrower maintained with Agent for the
amount of any
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payment due hereunder or on the Notes by Borrower. Except upon the occurrence
and during the continuance of an Event of Default, Agent shall provide notice to
Borrower one (1) Business Day prior to the day of any such charge.
2.23 Survivability. Borrower's obligations under Sections 2.5, 2.6,
2.15, 2.17, and 2.18 hereof shall survive repayment of the Loans and termination
of the Commitment hereunder.
ARTICLE III
CONDITIONS TO LOANS
3.1 Conditions Precedent to Initial Loans. The obligation of each Bank to
make its initial Loans hereunder (including Loans made in accordance with
Section 11.18 hereof) is, in addition to the conditions set forth in Sections
3.2 and 3.3 hereof, subject to the fulfillment, to the satisfaction of Agent on
behalf of the Banks, of each of the following conditions on or before the
Closing Date:
(a) The Closing Date shall occur on or before the Closing
Deadline;
(b) Borrower shall have completed, executed, and delivered the
Notes to Agent;
(c) Agent shall have received the written opinions, dated the
Closing Date, of counsel to the Loan Parties, in form and substance satisfactory
to Agent and its counsel;
(d) Agent shall have received a certificate of corporate status
with respect to each Loan Party, dated as of a recent date prior to the Closing
Date, or confirmed by telex, if telex confirmation is available, by the
Secretary of State of the state of such Loan Party's organization, such
certificate to be issued by such Secretary of State, which certificate shall
indicate that such Loan Party is in good standing in such state;
(e) Agent shall have received a copy of each Loan Party's articles
of incorporation certified by its Secretary or Assistant Secretary;
(f) Agent shall have received a copy of the by- laws of each Loan
Party certified by its Secretary or Assistant Secretary;
(g) Agent shall have received signature and incumbency
certificates respecting the officers of each Loan Party executing the Loan
Documents to which such Loan Party is a party;
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(h) Agent shall have received an Officer's Compliance Certificate
from Obligor, dated as of the Closing Date, duly executed by the chief financial
officer or controller of Obligor, substantially in the form of Exhibit O-1
attached hereto, certifying that no Event of Default or Unmatured Event of
Default has occurred and is continuing and detailing the calculations by which
Obligor has determined it is in compliance with the financial covenants
contained herein;
(i) Agent shall have received duly executed originals of the
Ancillary Documents listed on Schedule A-1, including the Collateral Agency
Intercreditor Agreement, the Supplemental Clarification Letter, the Fee Letter,
the BCE Guaranty, the BCE Security Agreement, the CFAC Guaranty, the CFAC Stock
Pledge Agreement (together with originals of the stock certificates evidencing
the capital stock of Borrower pledged and delivered thereunder and accompanying
undated stock powers executed in blank), the Borrower Security Agreement, the
Central Ram Guaranty, and the Central Ram Security Agreement, and each of such
Ancillary Documents shall be in full force and effect;
(j) Agent shall have received a certificate from each Loan Party's
Secretary or Assistant Secretary attesting to the resolutions of such Loan
Party's board of directors authorizing the execution, delivery, and performance
of the Loan Documents to which such Loan Party, and authorizing specific
officers to execute and deliver same;
(k) Agent shall have received full payment of all Fees due on or
before the Closing Date;
(l) Agent shall have received a certificate from Obligor's and
Central Ram's respective chief financial officers, controllers, or other senior
officers setting forth Obligor's and Central Ram's Rewrite Policy as in effect
on the Closing Date;
(m) The representations and warranties of Obligor set forth in
Article IV of this Agreement and in the Ancillary Documents shall be true and
correct in all material respects as of the Closing Date;
(n) Agent shall have received originals or copies of each of the
documents referred to in clauses (c), (d), (e), (f), (g), (h), (i), (j), and (l)
hereof in sufficient numbers so as to enable Agent to provide a copy thereof to
each Bank;
(o) The incurrence of the initial Loans and the application of the
proceeds thereof shall not constitute a default under or breach of any term or
condition of any material agreement of Obligor;
(p) No Material Adverse Effect shall have occurred, since June 30,
1992, with respect to Obligor;
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(q) No injunction, writ, restraining order, or other order of any
nature materially adverse to the making of the initial Loans hereunder shall
have been issued and remain in force by any governmental authority;
(r) Agent shall have completed and received all audits,
inspections, and examinations as deemed necessary in Agent's opinion with
respect to the Collateral, the books and records of Obligor, the financial and
business condition and operations of Obligor, and the transactions contemplated
hereby;
(s) Agent and each Floor Plan Lender providing financing to BCE as
of the Closing Date shall have executed and delivered an intercreditor agreement
in form and substance satisfactory to Agent and its counsel;
(t) Agent shall have received a form of intercompany billing
agreement and the same shall be satisfactory to Required Banks in their sole
discretion;
(u) Agent shall have received copies of insurance binders or
insurance certificates evidencing that Obligor has obtained property, casualty,
and liability insurance in amounts, with endorsements, and with insurers
reasonably satisfactory to Agent, and such insurance binders or insurance
certificates shall evidence that Agent has been named as a loss payee of all of
Obligor's property and casualty insurance policies, with a waiver of warranties
on a form 438-BFU or similar endorsement;
(v) [intentionally omitted]
(w) Agent shall have received a Certificate Regarding California
Commercial Code Section 9102(5)-(7), duly executed by the chief financial
officer or controller of Obligor, substantially in the form of Exhibit 3.1(w)
attached hereto;
(x) Agent shall have received acknowledgment of the filing of: (i)
a UCC-1 financing statement, duly executed and delivered by Borrower, naming
Borrower as debtor and Collateral Agent as secured party; (ii) a UCC-1 Financing
Statement, duly executed and delivered by BCE, naming BCE as debtor and Borrower
as secured party, relative to the sale of rights to payment; and (iii) a UCC-1
Financing Statement, duly executed and delivered by Central Ram, naming Central
Ram as debtor and Borrower as secured party, relative to the sale of rights to
payment; in each case, in form (including for filing with the California
Secretary of State) and substance satisfactory to Agent;
(y) Agent shall have received satisfactory written evidence that:
(i) all Contracts of BCE in existence immediately prior to the Restructuring
Transactions shall have been contributed by BCE to Borrower; and (ii) all
Contracts of Central Ram in existence immediately prior to the Restructuring
Transactions (other than certain such Contracts in the aggregate
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amount of approximately $190,000) shall have been contributed by Central Ram to
Borrower;
(z) Agent shall have received full payment of all of Agent's costs
and expenses (including the fees and expenses of Agent's counsel, including
allocated amounts for Agent's in-house counsel) incurred in connection with the
preparation, negotiation, execution, and delivery of this Agreement, the Notes,
the Ancillary Documents, and the other documents related hereto and thereto; and
(aa) All other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered, executed,
recorded, or filed and shall be in form and substance reasonably satisfactory to
Agent and its counsel.
Execution and delivery to Agent by a Bank of a counterpart to this Agreement
shall be deemed confirmation by such Bank that (i) the all conditions precedent
in this Section 3.1 requiring the approval of Required Banks have been fulfilled
to the satisfaction of such Bank, and (ii) the decision of such Bank to execute
and deliver to Agent an executed counterpart to this Agreement was made by such
Bank independently and without reliance on Agent or any other Bank as to the
satisfaction of any such condition precedent set forth in this Section 3.1.
3.2 Conditions Precedent to All Loans. The obligation of each Bank to
make each Loan hereunder is subject to the fulfillment, to the satisfaction of
Agent, at or prior to the time of the making of such Loan, of each of the
following further conditions:
(a) the representations and warranties of Obligor contained in
this Agreement and the Ancillary Documents, to the extent that Obligor is a
party thereto, and the representations and warranties of Central Ram contained
in the Ancillary Documents to which it is a party shall be true and correct in
all material respects at and as of the date of such Loan, as though made on and
as of such date (except to the extent that such representations and warranties
expressly relate solely to an earlier date);
(b) both before and after giving effect to such Loan, Obligor
shall be in compliance in all material respects with all of the requirements of
each of the covenants contained in this Agreement;
(c) no Event of Default or Unmatured Event of Default shall have
occurred and be continuing on the date of such Loan, nor shall an Event of
Default or Unmatured Event of Default result from the making of such Loan.
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(d) Borrower shall have delivered to Agent a Notice of Borrowing
pursuant to the terms of Section 2.8 hereof; and
(e) No injunction, writ, restraining order, or other order of any
nature preventing any Bank from funding any portion of such Loan shall have been
issued or remain in force by any governmental authority.
3.3 Determinations Under Section 3.1. For purposes of determining
compliance with the conditions specified in Section 3.1 each Bank shall be
deemed to have consented to, approved, accepted, or be satisfied with each
document or other matter required thereunder to be consented to, or approved of,
or acceptable, or satisfactory to such Bank unless the Agent shall have received
notice from such Bank prior to the Closing Date specifying its objection thereto
and such Bank shall not have made available to Agent such Bank's ratable portion
of the initial Loans.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF OBLIGOR
In order to induce Agent and each Bank to enter into this Agreement,
Obligor makes the following representations and warranties which, except as set
forth in the Disclosure Statement with a specific reference to the Section of
this Article IV affected thereby, shall be true, correct, and complete in all
respects as of the date hereof, and shall be true, correct, and complete in all
respects as of the Closing Date, and at and as of the date of each Loan made
thereafter, as though made on and as of the date of the making of such Loan
(except to the extent that such representations and warranties relate solely to
an earlier date) and such representations and warranties shall survive the
execution and delivery of this Agreement and the Notes and the making of the
Loans.
4.1 Due Organization; Subsidiaries. Obligor is a duly organized and
validly existing corporation in good standing under the laws of the State of
California and is duly qualified to conduct business as a foreign corporation in
all jurisdictions where it owns or leases real property or where its failure to
do so could reasonably be expected to have a Material Adverse Effect on Obligor.
Except as set forth in the Disclosure Statement, Obligor has no Subsidiaries.
4.2 Capital Stock or Interests of Obligor.
(a) Set forth in the Disclosure Statement is the following
information regarding Obligor: (i) the number of authorized shares of each class
of Obligor's common and preferred stock; and (ii) the number of shares
outstanding of each such class of shares. All of the shares of capital stock of
Obligor
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are owned by the persons identified in the Disclosure Statement. All of the
outstanding capital stock of Obligor has been validly issued and is fully paid
and non-assessable.
(b) Except as set forth in the Disclosure Statement, no capital
stock (or any securities, instruments, warrants, option or purchase rights,
conversion or exchange rights, calls, commitments, or claims of any character
convertible into or exercisable for capital stock) of Obligor is subject to
issuance under any security, instrument, warrant, option or purchase rights,
conversion or exchange rights, call, commitment, or claim of any right, title,
or interest therein or thereto.
(c) Obligor may amend the Disclosure Statement with respect to this
Section 4.2 to reflect changes that would not, individually or in the aggregate,
have a Material Adverse Effect on Obligor, violate any of the provisions of this
Agreement, or materially adversely affect Obligor's ability to repay any or all
of the Loans.
4.3 Requisite Power and Authorization. Obligor has all requisite
corporate power to execute and deliver this Agreement, (in the case of Borrower)
the Notes, the Ancillary Documents to which it is a party, and to borrow the
sums provided for in this Agreement. Obligor has all domestic governmental
licenses, authorizations, consents, and approvals necessary to own and operate
its Assets and to carry on its business as now conducted and as proposed to be
conducted, other than licenses, authorizations, consents, and approvals which
are not currently required or the failure to obtain which could not reasonably
be expected to have a Material Adverse Effect on Obligor. The execution,
delivery, and performance of this Agreement, the Notes (in the case of
Borrower), and the Ancillary Documents to which it is a party have been duly
authorized by Obligor's board of directors and all necessary corporate action in
respect thereof has been taken, and the execution, delivery, and performance
thereof do not require any consent or approval of the stockholders of Obligor
which has not been obtained.
4.4 Binding Agreements. This Agreement has been duly executed and
delivered by Obligor and constitutes, and the Notes (in respect of Borrower),
and the Ancillary Documents to which it is a party, when executed and delivered
by Obligor, will constitute, the legal, valid, and binding obligations of
Obligor, enforceable against Obligor in accordance with their terms, except as
the enforceability hereof or thereof may be affected by: (a) bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting the
enforcement of creditors' rights generally; (b) the limitation of certain
remedies by certain equitable principles of general applicability; and (c) the
fact that the rights to indemnification thereunder or hereunder may be limited
by federal or state securities laws.
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4.5 Other Agreements. The execution, delivery, and performance by
Obligor of this Agreement, (in respect of Borrower) the Notes, and the Ancillary
Documents to which it is a party do not and will not: (i) violate (A) any
provision of any material federal (including the Exchange Act), state, or local
law, rule, or regulation (including Regulations G, T, U, and X of the Federal
Reserve Board) binding on Obligor, or (B) any order of any domestic governmental
authority, court, arbitration board, or tribunal binding on Obligor, or (C) the
articles of incorporation or bylaws of Obligor; or (ii) contravene any
provisions of, result in a breach of, constitute (with the giving of notice or
the lapse of time) a material default under, or result in the creation of any
Lien (other than a Permitted Lien) upon any of the Assets of Obligor pursuant
to, any Contractual Obligation of Obligor; or (iii) except as provided for in
Section 3.1(t) hereof, require termination of any Contractual Obligation of
Obligor.
4.6 Litigation; Adverse Facts.
(a) There is no action, suit, proceeding, or arbitration at law or
in equity, or before or by any federal, state, municipal, or other governmental
department, commission, board, bureau, agency, or instrumentality, domestic or
foreign, pending or, to the knowledge of Obligor, threatened against or
affecting Obligor which could reasonably be expected to have a Material Adverse
Effect on Obligor, or on its ability to perform its obligations hereunder, under
the Notes, or under the Ancillary Documents to which it is a party;
(b) Obligor is not: (i) in violation of any applicable law,
ordinance, rule, or regulation in a manner which could reasonably be expected to
have a Material Adverse Effect on Obligor; or (ii) subject to or in default with
respect to any final judgment, writ, injunction, decree, rule, or regulation of
any court or of any federal, state, municipal, or other governmental department,
commission, board, bureau, agency, or instrumentality, domestic or foreign, in a
manner which could reasonably be expected to have a Material Adverse Effect on
Obligor; and
(c) (i) as of the date hereof or the Closing Date, there is no
action, suit, proceeding or, to the best of Obligor's knowledge or belief,
investigation pending or, to the best of Obligor's knowledge or belief,
threatened against or affecting Obligor which questions the validity or the
enforceability of this Agreement, the Notes, or the Ancillary Documents to which
Obligor is a party; and (ii) after the Closing Date, there is no action, suit,
or proceeding pending or, to the best of Obligor's knowledge or belief,
threatened against or affecting Obligor pursuant to which, on the date of the
making of any Loan hereunder, there is in effect a binding injunction which
could materially and adversely affect the validity or enforceability of this
Agreement, the Notes, or the Ancillary Documents to which Obligor is a party.
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4.7 Government Consents. Other than such as may have previously been
obtained, filed, or given, as applicable, no consent, license, permit, approval,
or authorization of, exemption by, notice to, report to or registration, filing,
or declaration with, any governmental authority or agency is required in
connection with the execution, delivery, and performance by Obligor of this
Agreement, the Notes, or the Ancillary Documents to which Obligor is a party.
4.8 Financial Condition.
(a) BCE has delivered to Agent and Banks balance sheets for BCE at
December 31, 1995 and 1994, and the related statements of earnings and retained
earnings and cash flow for the periods then ended. All such financial statements
have been examined by the Auditors whose reports thereon are included with such
financial statements. All such financial statements have been prepared in
conformity with GAAP applied on a consistent basis (except for changes, if any,
disclosed therein). Such statements of earnings and retained earnings and cash
flow present fairly the results of operations and cash flows of BCE for the
respective periods covered, and the balance sheets present fairly the financial
condition of BCE as of their respective dates. Since December 31, 1995, there
has been no change in any of the significant accounting policies, practices, or
procedures of BCE.
(b) BCE has delivered to Agent and Banks a balance sheet for BCE at
April 30, 1996, and the related statement of earnings and the monthly
delinquency report for the period then ended. Such interim financial statements
have been certified by the chief financial officer or controller of BCE. All
such interim financial statements have been prepared in accordance with GAAP
consistently applied during the periods covered (except as disclosed therein),
the statements of earnings present fairly the results of operations of BCE for
the respective periods covered, and the balance sheets present fairly the
financial condition of BCE as of their respective dates, except that such
financial statements may omit footnote disclosures required by GAAP to the
extent the content thereof would not materially differ in nature or amount from
those disclosures reported in the most recent audited period and year-end
adjustments to the extent not material. All such interim financial statements
reflect all adjustments (which consist only of normal recurring adjustments not
material in amount) necessary for a fair presentation.
(c) Since April 30, 1996, there has not been, occurred, or arisen:
(i) any change in or event affecting Obligor or its business
that has had or may reasonably be expected to have a Material Adverse
Effect on Obligor,
(ii) any strike or other labor dispute, or
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(iii) any casualty, loss, damage, or destruction (whether or
not covered by insurance) of any material property of Obligor.
(d) To the best of Obligor's knowledge, Obligor does not have any
liabilities of any nature, whether accrued, absolute, contingent, or otherwise,
and whether due or to become due, probable of assertion or not, that, in
accordance with GAAP applied on a consistent basis, should have been but were
not reflected or disclosed in the most recent of the financial statements
(including the notes thereto) referred to in subsections (a) and (b) above,
except liabilities which were incurred after April 30, 1996 in the ordinary
course of business. As of the date hereof and as of the Closing Date, Obligor
has no material Accommodation Obligation which is not: (i) reflected in the most
recent of the foregoing statements or in the notes thereto; or (ii) specifically
set forth in the Disclosure Statement.
4.9 Title to Assets; Liens. Except for Permitted Liens, all of the
Assets of Obligor are free from all Liens of any nature whatsoever. Except for
Permitted Liens, Obligor has good and valid title to all of its real property
and good and marketable title to all of its other Assets reflected in its books
and records as being owned by it. Substantially all of the Assets owned by,
leased to, or used by Obligor are in adequate operating condition and repair,
ordinary wear and tear excepted, are free and clear of any known defects except
such defects as do not substantially interfere with the continued use thereof in
the conduct of normal operations, and are able to serve the function for which
they are currently being used, except in each case where the failure of such
Asset to meet such requirements could not reasonably be expected to have a
Material Adverse Effect on Obligor. Neither this Agreement, nor any of the
Ancillary Documents to which Obligor is a party, nor any transaction
contemplated under any such agreement will affect any right, title, or interest
of Obligor in and to any of the Assets of Obligor in a manner that could
reasonably be expected to have a Material Adverse Effect on Obligor.
4.10 Tax Examination. Except as set forth in the Disclosure Statement,
no federal income tax returns of Obligor have been examined by the Internal
Revenue Service for all tax periods prior to and including the taxable year
ending December 31, 1995 and there are no tax examinations in progress. Obligor
has no knowledge of any material federal income tax liability with respect to
open taxable years in excess of amounts accrued on Obligor's audited financial
statements for its fiscal year ended December 31, 1995 that would be required to
be so accrued in accordance with GAAP.
4.11 Payment of Taxes. All tax returns and reports of Obligor required
to be filed by it have been timely filed (inclusive of any permitted
extensions), and all Taxes, assessments, fees, amounts required to be withheld
and paid by it
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to a governmental agency or regulatory authority, and other governmental charges
upon Obligor, and upon its Assets, income, and franchises, which are due and
payable by it have been paid, except to the extent that: (a) the failure to file
such returns or reports, or pay such Taxes, assessments, fees, and other
governmental charges, as applicable, could not reasonably be expected to have a
Material Adverse Effect on Obligor; or (b) other than with respect to Taxes,
assessments, charges or claims which have become a federal tax Lien upon any of
Obligor's Assets, such Tax, assessment, charge, or claim is being contested, in
good faith, by appropriate proceedings promptly instituted and diligently
conducted, and an adequate reserve or other appropriate provision, if any, shall
have been made as required in order to be in conformity with GAAP. Obligor does
not know of any proposed, asserted, or assessed tax deficiency against it that,
if such deficiency existed and had to be rectified, could reasonably be expected
to have a Material Adverse Effect on Obligor.
4.12 Governmental Regulation.
(a) Obligor is not, and immediately after the application by
Obligor of the proceeds of the Loans, will not be an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(b) Obligor is not: (i) a holding company or a Subsidiary or
Affiliate of a holding company, or a public utility, within the meaning of the
Public Utility Holding Company Act of 1935, as amended; or (ii) subject to any
state law or regulation regulating public utilities or similar entities.
(c) Obligor is not limited in its ability to incur debt under: the
Federal Power Act, the Interstate Commerce Act, or any federal, state, or local
law, rule, or regulation.
4.13 Securities Activities. Obligor is not engaged principally, or as
one of its principal activities, in the business of extending, or arranging for
the extension of, credit for the purpose of "purchasing" or "carrying" any
margin stock or securities (within the meaning of Regulations G, T, U, or X of
the Federal Reserve Board). No part of any Borrowing will be used by Obligor for
any purpose other than those set forth in Section 6.14 hereof.
4.14 Employee Benefit Plans.
(a) Obligor and each ERISA Affiliate is in compliance in all
material respects with ERISA with respect to all Plans and Multiemployer Plans,
the failure to comply with which could reasonably be expected to have a Material
Adverse Effect on Obligor, including: (i) having fulfilled the minimum funding
standards of ERISA; (ii) not having incurred liability to the PBGC; and (iii)
being able to pay benefits under each Plan and Multiemployer Plan when due.
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(b) Obligor and its ERISA Affiliates have not incurred nor
reasonably expect to incur any of the following which in the aggregate could
reasonably be expected to have a Material Adverse Effect on Obligor:
(i) a Termination Event;
(ii) withdrawal liability under ERISA to a Multiemployer
Plan;
(iii) unpaid and overdue insurance premiums to a Plan (which
is a "welfare plan" under Section3(l) of ERISA which is funded with
insurance); or
(iv) unpaid contributions to a Plan (which is a "welfare
plan" under Section3(l) of ERISA, which is not funded with insurance).
(c) Liabilities on a termination basis (irre- spective of whether
vested) of Obligor and its ERISA Affiliates under all Plans (excluding unfunded
deferred compensation agreements or other arrangements of similar nature whether
subject to ERISA and welfare plans not subject to the funding requirements of
ERISA) that have Assets (including accrued contributions for the current plan
year on a daily weighted average, provided that such accrued contributions do
not materially vary from the amount of the contributions actually received by
the plan for the prior plan year, on a daily weighted average) less than
liabilities (irrespective of whether vested) do not exceed the Assets
thereunder.
4.15 Disclosure. As of the date hereof and as of the Closing Date, no
representation or warranty of Obligor contained in this Agreement or any other
document, certificate, or written statement furnished to Agent or any Bank, by
or on behalf of Obligor with respect to the businesses, operations, Assets,
prospects, or condition (financial or otherwise) of Obligor for use in
connection with the transactions contemplated by this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. There is no fact known
to Obligor (other than matters of a general economic nature) which Obligor
reasonably believes could reasonably be expected to have a Material Adverse
Effect on Obligor, which has not been disclosed herein or in such other
documents, certificates, and statements furnished to Agent and Banks for use in
connection with the transactions contemplated hereby. Obligor has furnished, or
shall furnish, to Agent and Banks certain financial information concerning
Obligor, including estimates and projections of Obligor's results of operations
and financial position for and as at the end of certain future periods. There
are no statements or conclusions therein which, when taken as a whole, in light
of the circumstances under which they are or were made, to the knowledge and
belief of Obligor at
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the time provided, are based upon or include materially misleading information
or fail to take into account material information regarding the matters covered
therein. Obligor has no reason to believe that any of the statements or
conclusions included therein are not true and correct in all material respects
at the time provided. It is understood that no representation or warranty is
made by Obligor concerning any predictions, forecasts, estimates, or any other
analyses prepared by it or on its behalf, which are dependent on future events,
except that such predictions, forecasts, estimates, and analyses were prepared
with reasonable care.
4.16 Indebtedness. Obligor does not have any Indebtedness outstanding
on the date of this Agreement other than the Indebtedness reflected in the
financial statements referred to in Section 4.8 hereof or in the Disclosure
Statement or which is otherwise permitted under Section 6.1 hereof. After the
Closing Date, Obligor will not have any Indebtedness outstanding other than the
Indebtedness permitted by Section 6.1 hereof.
4.17 Licenses, Patents, Trademarks, and Intellectual Property.
(a) Obligor owns, is licensed or otherwise has the lawful right to
use, or has all copyrights, franchises, governmental approvals, licenses,
patents, patent rights, permits, service marks, trademarks, trademark rights,
trade names, and trade name rights used in or necessary in order for it to
conduct its business and to operate its Assets substantially as now or as
proposed to be conducted or operated, as the case may be, without known conflict
with or infringement upon the rights of third Persons (except for conflicts or
infringements which could not be reasonably expected to have a Material Adverse
Effect on Obligor), and all of same are valid and subsisting, except where such
lack of validity or subsistence could not reasonably be expected to have a
Material Adverse Effect on Obligor. The consummation of the transactions
contemplated by this Agreement will not alter or impair any of such rights of
Obligor.
(b) The Disclosure Statement contains a listing of all of
Obligor's copyrights, franchises, patents, patent rights, service marks,
trademarks, trademark rights, and trade names, and, if applicable, the date and
place of registration thereof.
(c) Obligor has not been charged or, to the best of Obligor's
knowledge, is not threatened to be charged with any infringement of, nor has it
infringed on any unexpired copyright, copyright registration, patent, patent
registration, trademark, trademark registration, trade name, or other
proprietary right of any Person, which charge or threat could reasonably be
expected to have a Material Adverse Effect on Obligor. Except as disclosed in
the Disclosure Statement, Obligor is not aware of any infringement or, to the
best of Obligor's knowledge,
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threatened infringement by any other Person of any copyright, copyright
registration, patent, patent registration, service mark, trademark, trademark
registration, trade name, or any other proprietary right of Obligor which could
reasonably be expected to have a Material Adverse Effect on Obligor.
4.18 Burdensome Agreements. Obligor is not a party to any unusual or
unduly burdensome agreement or undertaking, or is subject to any unusual or
unduly burdensome court order, writ, injunction, or decree of any court or
governmental instrumentality, domestic or foreign, which could reasonably be
expected to have a Material Adverse Effect on Obligor.
4.19 Existing Defaults. Obligor is not in default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any Contractual Obligation applicable to it, and no condition
exists which, with the giving of notice or the lapse of time, would constitute a
default under such Contractual Obligation, except, in any such case, where the
consequences, direct or indirect, of such default or defaults, if any, would not
have or could not reasonably be expected to have a Material Adverse Effect on
Obligor.
4.20 Contract Warranties. With respect to all Contracts (to which
Obligor is a party) scheduled, listed, or referred to on any balance sheet or
books and records of Obligor, or referred to in any other report delivered by
Obligor to Agent:
(a) the Contracts are genuine, are in all respects what they
purport to be, and are not evidenced by a judgment;
(b) the Contracts represent bona fide transac- tions completed in
accordance with the terms and provisions contained in the documents delivered to
Agent with respect thereto; and
(c) the services furnished or goods sold giving rise to the
Contracts when delivered to the customer (or carrier or intermediary, as the
case may be) were not subject to any lien except for Permitted Liens or Liens in
favor of Obligor.
4.21 Compliance with Consumer Finance Laws. Obligor is in compliance,
in all material respects, with all laws, regulations, or directives with respect
to consumer finance, including the California Unruh Act, California Civil Code
Sections 1799.90 et seq., the Federal Truth in Lending Act and the Federal Equal
Credit Act, all as may be amended, noncompliance with which could reasonably be
expected to have a Material Adverse Effect on Obligor or its ability to repay
timely the Loans.
4.22 Leases. Obligor enjoys peaceful and undisturbed possession under
all of the leases to which it is a party or under which it is operating and
which are material to the
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business of Obligor, and all such leases are valid and subsisting and no
material default by Obligor exists under any of them.
4.23 Fire, Explosion, and Labor Disputes. Neither the business nor the
Assets or operations of Obligor are presently affected by any fire, explosion,
accident, strike, lockout, or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy, or other casualty
(irrespective of whether covered by insurance), which could reasonably be
expected to have a Material Adverse Effect on Obligor.
4.24 Location of Chief Executive Office. Except as provided by Section
6.17 hereof, the chief executive office of Obligor is located at the address
indicated in the Disclosure Statement. The tangible Assets of Obligor are
located at the locations identified on the Disclosure Statement and, upon
compliance with the terms of Section 6.17 hereof, Obligor may amend the
Disclosure Statement to add additional locations where such Assets may,
thereafter, be located.
4.25 No Partnerships. Obligor is not a partner in any partnership or a
joint venturer in any joint venture.
4.26 Employment Agreements and Relations. Obligor is not a party to any
employment agreement or collective bargaining agreement. Obligor has not made,
obligated itself to make, renewed, extended, or otherwise modified or amended
any previous agreement to make, any excess parachute payment as defined in
Section 280G of the Code. During the three (3) years preceding the Closing Date
there was (or were) no: (a) strikes or shutdowns resulting from labor activity;
or (b) concerted work stoppages or concerted slowdown of any nature or length of
time, at any retail outlet, warehouse, or other facility owned or operated by
Obligor.
4.27 Environmental Matters. Obligor is in compliance, in all material
respects, with all applicable environmental, hazardous waste, health and safety
statutes and regulations governing its operations or properties, including the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource
Conservation and Recovery Act of 1976, the Federal Toxic Substances Control Act,
and the California Health and Safety Code. None of the operations of Obligor is
the subject of any federal or state investigation evaluating whether any
remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Obligor has no material contingent liability in connection with any release of
any toxic or hazardous waste or substance into the environment.
4.28 Solvency. Obligor is Solvent after giving effect to this Agreement
and each of the other Loan Documents to which it is a party.
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4.29 No Default. No Event of Default or Unmatured Event of Default has
occurred and is continuing.
4.30 Representations and Warranties Relating to Central Ram.
(a) Central Ram is a duly organized and validly existing
corporation in good standing under the laws of the State of Delaware and is duly
qualified to conduct business as a foreign corporation in all jurisdictions
where it owns or leases real property or where its failure to do so could
reasonably be expected to have a Material Adverse Effect on Central Ram.
(b) Central Ram has all requisite corporate power to execute and
deliver the Ancillary Documents to which it is party. Central Ram has all
domestic governmental licenses, authorizations, consents, and approvals
necessary to own and operate its Assets and to carry on its business as now
conducted and as proposed to be conducted, other than licenses, authorizations,
consents, and approvals which are not currently required or the failure to
obtain which cold not reasonably be expected to have a Material Adverse Effect
on Central Ram. The execution, delivery, and performance of the Ancillary
Documents to which it is a party have been duly authorized by Central Ram's
board of directors and all necessary corporate action in respect thereof has
been taken, and the execution, delivery, and performance thereof do not require
any consent or approval of the stockholders of Central Ram which has not been
obtained.
(c) The Ancillary Documents executed and delivered by Central Ram
constitute the legal, valid, and binding obligations of Central Ram, enforceable
against Central Ram in accordance with their terms, except as the enforceability
hereof or thereof may be affected by: (i) bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting the enforcement of
creditors' rights generally; (ii) the limitation of certain remedies by certain
equitable principles of general applicability; and (iii) the fact that the
rights to indemnification thereunder or hereunder may be limited by federal or
state securities laws.
(d) The execution, delivery, and performance by Central Ram of the
Ancillary Documents to which it is a party do not and will not: (i) violate (A)
any provision of any material federal (including the Exchange Act), state, or
local law, rule, or regulation (including Regulations G, T, U, and X of the
Federal Reserve Board) binding on Central Ram, or (B) any other of any domestic
governmental authority, court arbitration board, or tribunal binding on Central
Ram, or (C) the articles of incorporation or bylaws of Central Ram; or (ii)
contravene any provisions of, result in a breach of, constitute (with the giving
of notice or lapse of time) a material default under, or result in the creation
of any Lien (other than a Permitted Lien) upon any of the Assets of Central Ram
pursuant to, any Contractual
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Obligation of Central Ram; or (iii) require termination of any Contractual
Obligation of Central Ram.
(e) Each of the representations and warranties relating to Obligor
set forth in Sections 4.6 and 4.7 and Sections 4.9 through 4.28 is also true,
correct and complete in all respects with respect to Central Ram as of June 14,
1994, and at and as of the date of each Loan made thereafter, as though made on
and as of the date of making such Loan; provided, that each reference to Obligor
shall for purposes of this Section 4.30(e) be deemed to be a reference to
Central Ram and each reference to Obligor's execution, delivery or performance
of, or the validity of, any Loan Document shall for purposes of this Section
4.30(e) be deemed to refer to Central Ram's execution, delivery or performance
of, or the validity of, each Loan Document to which Central Ram is a party.
(f) Central Ram is Solvent after giving effect to each Ancillary
Document to which it is a party.
ARTICLE V
AFFIRMATIVE COVENANTS OF OBLIGOR
Obligor covenants and agrees that, so long as any portion of the
Commitment under this Agreement shall be in effect and until payment, in full,
of the Loans, with interest accrued and unpaid thereon, and any other amounts
due hereunder, and except as set forth in the Disclosure Statement with specific
reference to the Section of this Article V affected thereby concerning matters
which do not conform to the covenants of this Article V, Obligor shall perform
each and all of the following covenants:
5.1 Accounting Records and Inspection. Obligor shall maintain financial
and accounting books and records in accordance with sound business practices and
GAAP consistently applied, and permit any representative of a Bank, upon
reasonable notice to Obligor, at any time during usual business hours, to
inspect, audit, and examine such books and records and to make copies and take
extracts therefrom, and to discuss its affairs, financing, and accounts with its
officers and independent public accountants. Obligor shall furnish each Bank
with any information reasonably requested by any Bank regarding Obligor's
business or finances promptly upon such Bank's request. Obligor shall permit
those Persons designated by any Bank to visit and inspect any of the Assets of
Obligor upon reasonable notice and as often as may be reasonably requested.
Without limiting the generality of the foregoing, each Obligor will permit and
fully cooperate with Agent and Collateral Agent in the performance of a complete
field audit with respect to that Obligor to be performed at least twice during
each fiscal year of Obligor at Obligor's expense.
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5.2 Financial Statements and Other Information. Obligor shall furnish
Agent, subject to Section 1.3:
(a) as soon as practicable and, in any event, within forty-five
(45) calendar days after the close of each of the first three fiscal quarters of
each fiscal year of Obligor, and within one hundred (100) days after the close
of the fourth fiscal quarter of each fiscal year of Obligor, on a store-by-
store basis, a statement of profit and loss for such fiscal quarter of Obligor
for each retail store location of BCE, and, if so requested by Agent, a summary
of the inventory of BCE on a location-by-location basis (including warehouses)
at the end of such fiscal quarter of Obligor for each location of BCE, each
setting forth in comparative form, if applicable and to the extent available,
the corresponding figures for the corresponding period of the previous fiscal
year of Obligor, all in reasonable detail, prepared without footnotes and
subject to year-end audit adjustments, and certified by the chief financial
officer or controller of Obligor to have been prepared in accordance with GAAP
consistently applied; provided, however, that if such information is otherwise
prepared with any footnotes, such footnotes shall be furnished to Agent and each
Bank;
(b) as soon as practicable and, in any event, within forty-five
(45) calendar days after the close of each and every fiscal quarter of Obligor,
and within thirty (30) calendar days after the close of each fiscal month of
Obligor other than any month that marks the end of any fiscal quarter of
Obligor: (i) a statement of stockholders' equity and a cash flow statement of
Obligor for such period; (ii) an income statement of Obligor for such period;
and (iii) a balance sheet of Obligor as of the end of such period, each setting
forth in comparative form, if applicable, the corresponding figures for the
corresponding period of the previous fiscal year, all in reasonable detail,
prepared without footnotes and subject to year-end audit adjustments and
certified by the chief financial officer or controller of Obligor to have been
prepared in accordance with GAAP consistently applied; provided, however, that
if such information is otherwise prepared with any footnotes, such footnotes
shall be furnished to Agent and each Bank;
(c) as soon as practicable and, in any event, within one hundred
eight (108) calendar days after the close of each fiscal year of Obligor ending
1995 and within one hundred (100) calendar days after the close of each fiscal
year of Obligor thereafter, a copy of the annual audited report for such year
for Obligor, including therein: (i) a statement of stockholders' equity and a
cash flow statement of Obligor for such fiscal year; (ii) an income statement of
Obligor for such fiscal year; (iii) a balance sheet of Obligor as of the end of
such fiscal year, each setting forth corresponding figures for the previous
year, all in reasonable detail; and (iv) or, if later, in any event within 30
days after receipt, any management letter or other report of substance submitted
to Obligor by Obligor's Auditors in connection with any audit of the books of
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Obligor; the consolidated statements and balance sheet shall be audited by
Obligor's Auditors, shall contain an unqualified opinion of Obligor's Auditors
as to the fairness thereof, and shall be certified by such Auditors to have been
prepared in accordance with GAAP, consistently applied;
(d) within thirty (30) calendar days after the close of each fiscal
month and contemporaneously with each quarterly and year-end financial report
required by clauses (b) and (c) of this Section 5.2, an Officer's Compliance
Certificate duly executed by the chief financial officer or controller of
Obligor stating that he or she has individually reviewed the provisions of this
Agreement, the Ancillary Documents, and the Notes (such certificate shall
contain the calculations and other details necessary to demonstrate Obligor's
compliance with Section 6.6 hereof), that a review of the activities of Obligor
during such year, monthly period, or quarterly period, as the case may be, has
been made by or under such individual's supervision, with a view to determining
whether Obligor has fulfilled all of its obligations under this Agreement, the
Ancillary Documents, and the Notes, that Obligor has observed and performed each
undertaking contained in this Agreement, the Ancillary Documents, and the Notes,
and that Obligor is not in default in the observance or performance of any of
the provisions hereof or thereof, or if Obligor shall be so in default,
specifying all such defaults and events of which such individual may have
knowledge or belief;
(e) as soon as practicable and, in any event, within one hundred
twenty (120) calendar days after the close of each fiscal year of each Sister
Company: (i) a statement of stockholders' equity and a cash flow statement of
such Sister Company for such fiscal year; (ii) an income statement of such
Sister Company for such fiscal year; and (iii) a balance sheet of such Sister
Company as of the end of such fiscal year, each setting forth corresponding
figures for the previous year, all in reasonable detail; the statements and
balance sheet of Finance shall be audited by Finance's Auditors, shall contain
an unqualified opinion of Finance's Auditors as to the fairness thereof, shall
be certified by such Auditors to have been prepared in accordance with GAAP,
consistently applied, and shall be accompanied by any management letter or other
report of substance submitted to Finance by Finance's Auditors in connection
with any audit of the books of Finance; the statements and balance sheet of each
other Sister Company may be company- prepared; the requirements of this
subsection (e) may be satisfied by the delivery to Agent and each Bank, in lieu
of the statements and balance sheets described above, of consolidating schedules
to the audited financial statements of Holdings containing the same detailed
financial information;
(f) as soon as practicable and, in any event, within sixty (60)
calendar days after the close of each and every fiscal quarter other than the
fourth fiscal quarter of each Sister Company: (i) a statement of stockholders'
equity and a
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cash flow statement of such Sister Company for such period; (ii) an income
statement of such Sister Company for such period; and (iii) a balance sheet of
such Sister Company as of the end of such period, each setting forth in
comparative form, if applicable, the corresponding figures for the corresponding
period of the previous fiscal year, all in reasonable detail, prepared without
footnotes and subject, in the case of Finance, to year-end audit adjustments and
certified by the chief financial officer or controller of such Sister Company to
have been prepared in accordance with GAAP consistently applied; provided,
however, that if such information is otherwise prepared with any footnotes, such
footnotes shall be furnished to Agent and each Bank; the requirements of this
subsection (f) may be satisfied by the delivery to Agent and each Bank, in lieu
of the statements and balance sheets described above, of consolidating schedules
to the company-prepared financial statements of Holdings containing the same
detailed financial information;
(g) within fifteen (15) days after the close of each fiscal month
of Obligor, a Borrowing Base Certificate demonstrating Obligor's compliance with
Section 2.1(b)(iii) hereof as of the end of such month, together with (i) a
summary delinquency aging report with regard to outstanding Contracts as of the
end of such month; (ii) a month-end management report for such month summarizing
delinquencies, charge-offs, recoveries and number of Contracts outstanding; and
(iii) a summary aging of its accounts payable and accounts receivable as of the
end of such month;
(h) within thirty (30) calendar days after the close of each fiscal
month and contemporaneously with each quarterly and year-end financial report
required by clauses (b) and (c) of this Section 5.2, Obligor's analysis of
financial results, as customarily prepared by management of Obligor for internal
use;
(i) Prompt notice of the particulars of any change known to any
Responsible Officer of Obligor pertaining to Obligor's location within an
"enterprise zone" that could affect the taxability of any interest or fees
payable by Obligor to any Bank under any Loan Document;
(j) contemporaneously with each quarterly and year-end financial
report required by clauses (b) and (c) of this Section 5.2, a certificate of the
chief financial officer or controller of Obligor separately identifying and
describing all Accommodation Obligations of Obligor; provided, however, that
such certificate shall not be required with regard to any period during which
the aggregate Indebtedness of Obligor with regard to Accommodation Obligations
does not exceed Fifty Thousand Dollars ($50,000);
(k) promptly upon the request of Agent, an inventory listing
detailing Obligor's inventory by supplier and
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by category as of the end of the most recently ended fiscal quarter of Obligor;
(l) notice, as soon as possible and, in any event, within five (5)
calendar days after Obligor has knowledge, of: (i) the occurrence of any Event
of Default or any Unmatured Event of Default; or (ii) any default or event of
default (and passage of any applicable cure period) as defined in any evidence
of Indebtedness of Obligor or under any agreement, indenture, or other
instrument under which such Indebtedness has been issued, irrespective of
whether such Indebtedness is accelerated or such default waived. In any such
event, Obligor shall also supply Agent and each Bank with a statement from
Obligor's chief financial officer or controller setting forth the details
thereof and the action which Obligor proposes to take with respect thereto;
(m) as soon as practicable, any written report pertaining to
material items in respect of Obligor's internal control matters submitted to
Obligor by its Auditors in connection with each annual or interim special audit
of the financial condition of Obligor;
(n) as soon as practicable, written notice of any condition or
event (other than general economic or market trends) which has resulted or may
reasonably be expected to result in: (i) a Material Adverse Effect on Obligor;
(ii) a breach of, or noncompliance with, any term, condition, or covenant
contained in this Agreement, the Ancillary Documents, or the Notes; or (iii) a
material breach of, or noncompliance with, any material term, condition, or
covenant of any Contractual Obligation of Obligor;
(o) as soon as practicable, written notice of any claims,
proceedings, or disputes against, or to the knowledge or belief of Obligor,
threatened or affecting, Obligor which, if adversely determined, would have a
Material Adverse Effect on Obligor (without in any way limiting the foregoing,
claims, proceedings, or disputes involving monetary amounts in excess of Two
Hundred Thousand Dollars ($200,000) in excess of any insurance coverage therefor
shall be deemed to be material for purposes of this subsection (o)), or any
material labor controversy resulting in or threatening to result in a strike
against Obligor, or any proposal by any public authority of which Obligor has
knowledge to acquire any of the material Assets of Obligor;
(p) promptly, upon becoming aware of the occur- rence of any of the
following events, a written notice specifying the nature thereof and, when
known, any action taken or threatened by the Internal Revenue Service, PBGC,
Department of Labor, or other party with respect thereto: (i) a Reportable
Event; (ii) a "prohibited transaction," as such term is defined in Section4975
of the Code (which prohibited transaction could subject Obligor or an ERISA
Affiliate to a civil penalty assessed pursuant to Section 502(i) of ERISA or a
tax imposed by Section 4975 of the
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Code); (iii) a failure to pay timely the required annual payment or the full
amount of a required installment for any Plan in any plan year by the due date
as required by Section412 of the Code; (iv) any additional premium that must be
paid to PBGC under Section4006(a)(3)(E) of ERISA; or (v) any Lien on the Assets
of Obligor or an ERISA Affiliate under Section412 of the Code or Section302 of
ERISA;
(q) promptly, copies prepared or received by Obligor or an ERISA
Affiliate of: (i) all notices of intent to terminate or to have a trustee
appointed to administer any Plan; (ii) all written demands by the PBGC under
Subtitle D of Title IV of ERISA; (iii) at the request of Agent, each annual
report (Internal Revenue Form 5500 series or similar series under the applicable
laws of any foreign country) and all accompanying schedules, the most recent
actuarial reports, the most recent financial information concerning the
financial status of each Plan or Multiemployer Plan, and schedules showing the
amounts contributed to each Plan or Multiemployer Plan by or on behalf of
Obligor or any ERISA Affiliates; (iv) all written notices received concerning
the imposition or amount of withdrawal liability pursuant to Section4202 of
ERISA; (v) all notices required to be sent to employees or to the PBGC under
Section302 of ERISA or Section412 of the Code;
(r) promptly and in any event not later than two (2) months after
the end of each fiscal year of Obligor, Obligor's cash flow, income statement,
and balance sheet projections for Obligor for the one (1) year period
immediately following such fiscal year, set forth on a quarterly basis and
otherwise in form and substance reasonably acceptable to Agent, together with
any other forecasts and similar reports, if any, customarily prepared by the
management of Obligor for internal use or pursuant to any provisions of any
instrument or document relating to any Indebtedness of Obligor;
(s) promptly upon becoming aware of any Person's seeking to obtain
or threatening to seek to obtain a decree or order for relief with respect to
Obligor in an involuntary case under any applicable bankruptcy, insolvency, or
other similar law now or hereafter in effect, a written notice thereof
specifying what action Obligor is taking or proposes to take with respect
thereto;
(t) prompt notice of all legal or arbitral proceedings, and all
proceedings by or before any governmental or regulatory authority or agency to
which Obligor is a party or, to the best of Obligor's knowledge or belief,
affecting Obligor which, if adversely determined, could reasonably be expected
to have a Material Adverse Effect on Obligor, or on the timely payment of the
principal of or interest on the Loans, or the enforceability of this Agreement,
the Ancillary Documents, or the Notes, or the rights and remedies of Agent or
any Bank hereunder or thereunder, as applicable;
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(u) promptly, copies of all amendments to the articles or
certificate of incorporation or bylaws of Obligor;
(v) as soon as practicable and, in any event, within thirty (30)
calendar days after the close of each fiscal month of Obligor, a month-end
dilution report for such month, summarizing returns, rebates, discounts,
credits, and allowances;
(w) promptly, such other information and data with respect to
Obligor as from time to time may be reasonably requested by Agent;
(x) as soon as practicable and, in any event, within forty-five
(45) calendar days after the close of each and every fiscal quarter of CFAC, on
a consolidated and consolidating basis: (i) a statement of stockholders' equity
and a cash flow statement of CFAC for such period; (ii) an income statement of
CFAC for such period; and (iii) a balance sheet of CFAC as of the end of such
period, each setting forth in comparative form, if applicable, the corresponding
figures for the corresponding period of the previous fiscal year, all in
reasonable detail, prepared without footnotes and subject to year-end audit
adjustments and certified by the chief financial officer or controller of CFAC
to have been prepared in accordance with GAAP consistently applied; provided,
however, that if such information is otherwise prepared with any footnotes, such
footnotes shall be furnished to Agent and each Bank;
(y) as soon as practicable and, in any event, within one hundred
(100) calendar days after the close of each fiscal year of CFAC, a copy of the
annual audited report for such year for CFAC, including therein, on a
consolidated and consolidating basis: (i) a statement of stockholders' equity
and a cash flow statement of CFAC for such fiscal year; (ii) an income statement
of CFAC for such fiscal year; (iii) a balance sheet of CFAC as of the end of
such fiscal year, each setting forth corresponding figures for the previous
year, all in reasonable detail; and (iv) or, if later, in any event within 30
days after receipt, any management letter or other report of substance submitted
to CFAC by CFAC's Auditors in connection with any audit of the books of CFAC;
the statements and balance sheet shall be audited by CFAC's Auditors, shall
contain an unqualified opinion of CFAC's Auditors as to the fairness thereof,
and shall be certified by such Auditors to have been prepared in accordance with
GAAP, consistently applied;
(z) promptly upon the filing thereof, copies of all reports, if
any, or other documents filed by CFAC or any of its Afiliates with the
Securities and Exchange Commission under the Exchange Act, and all reports,
notices, or statements sent or received by CFAC or any of its Affiliates to or
from the holders of any debt or equity securities of CFAC (other than routine
non-material correspondence sent by stockholders of CFAC to CFAC); and
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(aa) at the times specified with respect to Obligor in this Section
5.2, comparable information required with respect to Obligor for Central Ram;
provided that the combining financial statements of Obligor shall not be
required to be audited.
5.3 Corporate Existence. Except as provided by Section 6.7 hereof,
Obligor shall preserve and keep in full force and effect, at all times, its
corporate existence.
5.4 Payment of Taxes and Claims. Obligor shall pay all Taxes,
assessments, and other governmental charges imposed upon it or any of its Assets
or in respect of any of its business, income, or Assets before any penalty or
interest accrues thereon, and all claims (including claims for labor, services,
materials, and supplies) for sums which have become due and payable and which by
law have or may become a Lien upon any of its Assets, prior to the time when any
penalty or fine shall be incurred with respect thereto; provided, however, that,
unless such Taxes, assessments, charges, or claims have become a federal tax
Lien on any of Obligor's Assets, no such Tax, assessment, charge, or claim need
be paid if the same is being contested, in good faith, by appropriate
proceedings promptly instituted and diligently conducted and if an adequate
reserve or other appropriate provision, if any, shall have been made therefor as
required in order to be in conformity with GAAP.
5.5 Maintenance of Properties. Obligor shall maintain or cause to be
maintained in good repair, working order, and condition all of those Assets
useful or necessary to its business or which are used in connection therewith or
related thereto, except for Assets which in the aggregate are not material to
the business or operations of Obligor. From time to time, Obligor shall make or
cause to be made all appropriate repairs, renewals, and replacements thereto and
thereof. Notwithstanding the foregoing, Obligor shall not be required to comply
with the requirements of this Section 5.5 to the extent that compliance
therewith would not be economical and the failure so to comply would not have a
Material Adverse Effect on Obligor.
5.6 Insurance. Obligor shall maintain or cause to be maintained, with
financially sound and reputable insurers, (rated "A" or better by "Best's
Insurance Reports") insurance with respect to its Assets and business against
loss or damage of the kinds customarily insured against by corporations of
established reputation engaged in the same or similar businesses and similarly
situated, of such types and in such amounts as are customarily carried under
similar circumstances by such other corporations. Agent shall be named as the
sole loss payee (or, together with any Floor Plan Lender(s), the sole loss
payees), under a 438-BFU endorsement or other similar endorsement, under
Obligor's insurance policies; provided, however, that: (i) so long as no Event
of Default or Unmatured Event of Default has occurred and is continuing; and
(ii) so long as no Event of Default or Unmatured Event of Default shall arise
from the
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payment by Obligor of the costs or expenses of repair or replacement of such
insured Assets, then Obligor shall be entitled to use such proceeds of insurance
in an aggregate amount not to exceed One Hundred Thousand Dollars ($100,000) in
any fiscal year of Obligor (or such greater amount thereof as Obligor can
demonstrate is necessary) solely to repair or replace such Assets. Obligor
shall, concurrently with the financial information required to be delivered by
Obligor at the end of each fiscal year of Obligor pursuant to Section 5.2(c)
hereof, deliver to Agent copies of certificates describing Obligor's workmen's
compensation insurance, property insurance, casualty insurance, business
interruption insurance, and liability insurance then in effect, and confirming
the ratings of the insurers providing such insurance, and Obligor shall deliver
to Agent such other information, certificates and data regarding insurance as
from time to time may be reasonably requested by Agent. Notwithstanding the
foregoing, in the event that Obligor has obtained any insurance in accordance
with this Section 5.6 and, after the effective date of such insurance, the
insurer providing such insurance shall be rated less than "A" by "Best's
Insurance Reports," Obligor shall retain or replace such insurance as follows:
(x) if the new rating of such insurer is "B" or better, Obligor may retain such
insurance until the next renewal date thereof (but, in any event, not more than
twelve (12) months after such insurer has been rated less than "A") at which
time such insurance shall be replaced with an insurer satisfying the
requirements set forth in this Section 5.6; and (y) if the new rating of such
insurer is less than "B," Obligor shall immediately replace such insurance with
an insurer satisfying the requirements set forth in this Section 5.6.
5.7 Compliance with Laws. Obligor shall exercise all due diligence in
order to comply in all material respects with the requirements of all applicable
laws, rules, regulations, and orders of any governmental authority,
noncompliance with which could reasonably be expected to have a Material Adverse
Effect on Obligor; provided, however, that no such law, rule, regulation, or
order of any governmental authority need be complied with if the same is being
contested, in good faith, by appropriate proceedings promptly instituted and
diligently conducted.
5.8 Compliance with ERISA. Obligor shall and shall take all necessary
actions to ensure that each ERISA Affiliate shall take no action which would
render the representations and warranties set forth in Section 4.13 hereof
inaccurate in any material respect.
5.9 Consumer Finance Regulations. Obligor shall comply, in all material
respects, with all laws, regulations, or directives with respect to consumer
finance, including the California Unruh Act, California Civil Code Sections
1799.90 et seq., the Federal Truth in Lending Act and the Federal Equal Credit
Act, all as may be amended, noncompliance with which could reasonably be
expected to have a Material Adverse Effect on Obligor or its ability to repay
timely the Loans; provided,
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however, that this Section 5.9 shall not prevent Obligor from, in good faith and
with reasonable diligence, contesting the validity or application of any such
laws or regulations by appropriate legal proceedings. Within sixty (60) days
after the Closing Date, each of Borrower and BCE shall either (a) duly obtain
from the California Commissioner of Corporations a license to engage in the
business of a finance lender (as defined in Section 22009 of the California
Financial Code) and provide to Agent a copy of such license, or (b) deliver to
Agent an opinion of counsel acceptable to Required Banks, in form and substance
acceptable to Required Banks, that such Person does not need such a license to
engage in the businesses in which it is engaged.
5.10 Further Assurances. At any time or from time to time upon the
request of Agent, Obligor shall execute and deliver such further documents and
do such other acts and things as Agent may reasonably request, including the
endorsement and delivery to Agent of the originals of all notes, instruments,
consumer credit agreements, chattel paper, and any other documents included in
the Collateral, in order to evidence, perfect, or continue perfected the
security interests in the Collateral granted to Agent under this Agreement or
the Ancillary Documents. It is the intention of the parties that Agent shall
have a Lien upon all of Obligor's present and future Assets other than premises
of Obligor encumbered by New Mortgages; as such, at any time and from time to
time upon the request of Agent, Obligor shall execute and deliver documents,
agreements and instruments and do such other acts and things as Agent may
reasonably request to grant, evidence, perfect or continue perfected Liens in
favor of Agent with regard to any of Obligor's Assets, present or future, which
are not encumbered pursuant to the Ancillary Documents as of the Closing Date.
Obligor shall cause the following legend (or a legend similar in substance) to
be prominently displayed on the face page and each signature page of each
Contract, security agreement owned by Obligor, and other note, chattel paper, or
instrument:
"THIS DOCUMENT HAS BEEN ASSIGNED
AND SECURES INDEBTEDNESS TO BANK OF
AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, AS AGENT, AND ITS
SUCCESSORS."
The foregoing notwithstanding, with respect to such documents entered into prior
to the Old Signing Date, or after the Old Signing Date but utilizing pre-printed
forms printed prior to the Old Signing Date, such legend may refer to Security
Pacific National Bank and its successors rather than to BofA. Obligor shall
cause each secured promissory note in favor of Obligor which is not included in
the body of a security agreement to be stapled to the applicable security
agreement and shall cause the following legend to be prominently displayed on
the face of each such note:
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"THIS OBLIGATION IS SECURED BY AN
INTEREST IN COLLATERAL AS SHOWN BY
THE SECURITY AGREEMENT ATTACHED
HERETO."
5.11 Compliance by Central Ram. Obligor shall cause Central Ram to
perform each and every covenant contained in Sections 5.3 through 5.10;
provided, that for purposes of this Section 5.11, each reference to Obligor
contained in Sections 5.3 through 5.10 shall be deemed to be a reference to
Central Ram.
5.12 Intercompany Services. Obligor shall cause all services performed
by Obligor or any Affiliate of Obligor for any other Affiliate of Obligor or
Obligor, as applicable, to be subject to an Intercompany Billing Agreement in
form and substance satisfactory to Agent and Banks.
5.13 Collection and Disbursement Procedures. Obligor shall comply with
the procedures for collections and disbursements of funds between Affiliates of
Obligor provided in the attachment to that certain memorandum dated October 4,
1995 from Stephen D. Olson to Don Farris.
ARTICLE VI
NEGATIVE COVENANTS OF OBLIGOR
Obligor covenants and agrees that, so long as any portion of the
Commitment under this Agreement shall be in effect and until payment, in full,
of the Loans, with interest accrued and unpaid thereon, and any other amounts
due hereunder, and except as set forth in the Disclosure Statement with specific
reference to the Section of this Article VI affected thereby concerning matters
which do not conform to the covenants of this Article VI, Obligor shall perform
each and all of the following covenants:
6.1 Indebtedness. Obligor shall not create, incur, assume, permit,
guarantee, or otherwise become or remain, directly or indirectly, liable with
respect to any Indebtedness, except:
(a) Obligor may become and remain liable with respect to the
Indebtedness evidenced by this Agreement, (in respect of Borrower) the Notes,
and the Ancillary Documents;
(b) BCE may become and remain liable with respect to the
Indebtedness resulting from Capitalized Leases permitted by Section 6.6(e)
hereof (other than such Indebtedness secured by Permitted Liens);
(c) BCE may become and remain liable with respect to the
Accommodation Obligations permitted by Section 6.4 hereof;
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(d) Obligor may remain liable with respect to the Indebtedness set
forth in the Disclosure Statement;
(e) BCE may become and remain liable with respect to Indebtedness
secured by Liens set forth in clauses (viii), (x), and (xi) of the definition of
"Permitted Liens";
(f) BCE may remain liable with respect to the Indebtedness
evidenced by the Perelman Subordinated Note;
(g) BCE may become and remain liable with respect to Indebtedness
incurred pursuant to any Hedge Agreement;
(h) BCE may become and remain liable with respect to Indebtedness
advanced by Floor Plan Lenders for the purpose of acquiring inventory and
equipment in an aggregate amount not to exceed at any time $18,000,000;
provided, however, that each such Floor Plan Lender shall have entered into an
intercreditor agreement with Agent in form and substance satisfactory to Agent
and its counsel;
(i) BCE may become and remain liable with respect to Indebtedness
consisting of New Mortgage Loans; and
(j) the respective entity comprising Obligor may become and remain
liable with respect to refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b), (c), (d), (e), (f), (g), (h), and (i) of this
Section 6.1 (and continuance or renewal of any Permitted Liens associated
therewith) so long as: (i) the terms and conditions of such refinancings,
renewals, or extensions are substantially similar to the then current terms and
conditions of such Indebtedness; (ii) to the extent that such Indebtedness
constitutes subordinated debt, such refinancing, renewing, refunding, or
extending Indebtedness contains subordination provisions substantially similar
to the then current subordination provisions of such Indebtedness; (iii) the net
cash proceeds of such refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended; and (iv) such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted maturity (at
the time of such refinancing, renewal, or extension) of the Indebtedness so
refinanced, renewed, or extended.
(k) BCE may become and remain liable with respect to any existing
or future revolving Subordinated Debt owed to any of its Affiliates, which is
incurred to finance BCE's working capital needs, provided that the subordination
agreement executed in connection with such Subordinated Debt shall provide,
among other things, that payments of principal and interest on such Debt (at a
rate not exceeding the rate or rates payable by Obligor to the Banks hereunder)
may be made on such Debt, subject to the subordination provisions thereof.
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(l) BCE may become and remain liable with respect to Permanent
Subordinated Debt.
6.2 Liens. Obligor shall not:
(a) create, incur, assume, or permit to exist, directly or
indirectly, any Lien of any kind on or with respect to any of its Assets,
whether now owned or hereafter acquired, or any income or profits therefrom,
except for Permitted Liens; or
(b) enter into, assume, or permit to exist any agreement to refrain
from granting Liens to Agent for the benefit of Banks, on or with respect to any
of its Assets, whether now owned or hereafter acquired.
6.3 Investments. Other than in connection with the Restructuring
Transactions, Obligor shall not make or own, directly or indirectly, any
Investment in any Person, except:
(a) Obligor may make loans or advances to its employees; provided,
however, that (i) aggregate loans and advances to any one employee shall not
exceed Two Thousand Dollars ($2,000) and (ii) aggregate loans and advances to
all employees shall not exceed Fifty Thousand Dollars ($50,000);
(b) Obligor may maintain any Investment extant on the date hereof,
which Investments are set forth in the Disclosure Statement; and
(c) Obligor may make and maintain Investments in Cash Equivalents.
6.4 Accommodation Obligations. Obligor shall not create or become or be
liable, directly or indirectly, with respect to any Accommodation Obligation,
except:
(a) Accommodation Obligations resulting from the endorsement of
instruments for collection in the ordinary course of business;
(b) Accommodation Obligations disclosed in the financial statements
and related notes referred to in Section 5.2 hereof or reflected in the
Disclosure Statement and any refinancings, renewals, or extensions of such
Accommodation Obligations on terms substantially similar to the original terms
thereof;
(c) Accommodation Obligations not in excess of Fifty Thousand
Dollars ($50,000) with regard to Indebtedness of Obligor's employees;
(d) BCE and Central Ram may sell to Borrower, and Borrower may
purchase from BCE and Central Ram, Contracts, in accordance with the Financing
Agreement; and
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(e) Accommodation Obligations relating to Letters of Credit.
Without limiting the foregoing, Borrower shall be permitted to obtain and be
liable for Letters of Credit issued in support of the obligations of BCE.
6.5 Dividends. Obligor shall not make or declare, directly or
indirectly, any dividend (in cash, return of capital, or any other form of
Assets) on, or make any other payment or distribution on account of, or set
aside Assets for a sinking or other similar fund for the purchase, redemption,
or retirement of, or redeem, purchase, retire, or otherwise acquire any shares
or interest of, any class of Obligor's capital stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or Assets or in obligations; provided, however,
that if no Event of Default or Unmatured Event of Default has occurred and is
continuing or would result therefrom, the provisions of this Section 6.5 shall
not be violated by reason of (a) (i) the payment of any dividends by BCE to
Holdings to enable Holdings to make payment of its Federal and state income and
franchise tax obligations appropriately allocable to the operations of BCE
(using an allocation methodology reasonably acceptable to Required Banks), or
(ii) the payment of any dividends by Borrower to CFAC to enable CFAC to make
payment of its Federal and state income and franchise tax obligations
appropriately allocable to the operations of Borrower (using an allocation
methodology reasonably acceptable to Required Banks); and (b) the payment of any
dividends in cash by BCE to Holdings in an aggregate amount not to exceed Two
Hundred Fifty Thousand Dollars ($250,000) and the payment of dividends by BCE to
Holdings in the form of promissory notes issued by employees of BCE to Holdings
to purchase shares of Holdings common stock, which promissory notes were
subsequently contributed to the common equity of BCE, provided, however, that
within five (5) days of the receipt thereof such distributions of cash and notes
are applied by Holdings to the repurchase from employees of BCE of shares of
Holdings common stock, provided, further, that if after the Closing Date shares
of Holdings common stock are issued and sold by Holdings to employees of BCE and
the net cash proceeds of such sales or promissory notes of such employees
related thereto are contributed to the common equity of BCE by Holdings, then
the aggregate amount of such dividends made pursuant to this clause (b) shall be
deemed not to include an amount equal to the sum of (x) the amount of such net
cash proceeds received in respect of such contribution and (y) the amount of any
cash payment(s) to BCE in respect of any such contributed promissory note;
provided, further, that if no Event of Default or Unmatured Event of Default has
occurred and is continuing or would result therefrom, BCE may, notwithstanding
this Section, pay dividends or distributions to West Coast or Holdings strictly
in accordance with the terms of the Net Worth Maintenance Agreement.
6.6 Financial Covenants. Subject to Section 1.3:
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(a) Ratio of Total Debt to Tangible Net Worth. Obligor shall not
permit, as of the last day of any of its fiscal quarters, the ratio of: (i)
Total Debt (not including Permanent Subordinated Debt), to (ii) Tangible Net
Worth, to be greater than 3.50:1.0.
(b) Past Due Receivables Ratio. Obligor shall not permit, as of the
last day of any of its fiscal months, the ratio of (i) the total amount owing to
Obligor under each Eligible Contract in which any payment is more than sixty
(60) days past due, to (ii) the total amount owing to Obligor under all Eligible
Contracts, to be greater than 0.0400:1.00 for any fiscal month; provided,
however, that for purposes of calculating this ratio during the period from and
including November 30, 1995 to and including March 31, 1996 only, those Eligible
Contracts that were purchased under that certain Asset Purchase Agreement dated
as of May 26, 1994, among Central Ram, Golden Gate Furniture, Inc., Ramco
Finance Company, and Steven R. Ram shall be excluded from clause (i) and (ii);
(c) Cash Advances and Loans. Obligor shall not permit (i) the total
amount of cash advances and loans made to Sister Companies, excluding BCE
Playground, Inc., to exceed Five Hundred Thousand Dollars ($500,000) outstanding
at any time or (ii) the total amount of cash advances and loans made to BCE
Playground, Inc. to exceed Two Hundred Seventy Five Thousand Dollars ($275,000)
at any one time.
(d) Capital Expenditures. Obligor shall not make any Capital
Expenditure during any fiscal year of Obligor if, after giving effect thereto,
the aggregate amount of all Capital Expenditures (other than Capital
Expenditures made with the proceeds of insurance solely to repair or replace
Assets in accordance with the provisions of Section 5.6 hereof) incurred by
Obligor during such fiscal year would exceed Seven Hundred Fifty Thousand
Dollars ($750,000) with respect to any fiscal year.
(e) Operating Leases. Obligor shall not create, incur or assume
obligations payable during any fiscal year with respect to Operating Leases
which in the aggregate exceed the aggregate obligations with respect to
Operating Leases paid or payable by Obligor during the immediately preceding
fiscal year plus: Seven Hundred Fifty Thousand Dollars ($750,000) with respect
to each fiscal year (in each case versus the prior fiscal year).
Notwithstanding the provisions of clauses (d) and (e) of this Section 6.6, the
maximum amounts set forth therein shall be automatically increased or decreased,
as follows:
(1) the maximum amount permitted for Capital Expenditures or
Operating Leases for any fiscal year may be increased by an
equivalent amount of Permanent Subordinated Debt, not to exceed an
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aggregate of $2,000,000, incurred during such year;
(2) the maximum amount permitted under clause (e) for Operating
Leases expenditures shall be decreased in each fiscal year that
follows a fiscal year in which an increase in permitted Operating
Leases expenditures under clause (1) has occurred, by the amount of
such increase;
(3) the maximum amount permitted for either Capital
Expenditures or Operating Leases in any fiscal year shall be
increased by an amount equal to the difference between the maximum
permitted amount in the prior fiscal year, and Obligor's actual
Capital Expenditures or obligations incurred under Operating
Leases, as the case may be, during such prior fiscal year.
(f) Cash Flow to Interest Coverage Ratio. Obligor shall not permit,
as of the last day of any of its fiscal quarters, its Cash Flow to Interest
Coverage Ratio (defined as the ratio of (i) (A) net income (or loss) after
taxes, plus (B) depreciation and amortization expenses, plus (C) total interest
expense, plus (D) other non-cash items reducing net income (excluding
extraordinary items), minus (E) cash capital expenditures to the extent not
funded by new cash equity contributions to Obligor, Permanent Subordinated Debt,
or the proceeds of Permitted Indebtedness incurred from sources other than Loans
by the Banks; to (ii) cash interest expense), to be less than 2.50:1.00,
calculated as of the last day of each fiscal quarter for such quarter and the
immediately preceding fiscal quarter.
(g) Doubtful Accounts Ratio. Obligor shall not permit its Doubtful
Accounts Ratio (defined as the ratio of (i) the reserve for bad debt expense
maintained by Obligor in accordance with GAAP to (ii) Net Contracts) to be less
than .03:1.0 at any time.
(h) Tangible Net Worth. Obligor shall not permit its Tangible Net
Worth to be less than $15,500,000 as of October 31, 1993, plus, as of the end of
each succeeding fiscal quarter, 50% of the amount, as of the end of such
quarter, of Obligor's net income for such quarter. The minimum Tangible Net
Worth required under this Section shall not be reduced by any losses incurred by
Obligor.
(i) Net Chargeoffs to Net Contracts Ratio. Obligor shall not
permit, as of the last day of each of its fiscal months, its Net Chargeoffs to
Net Contracts Ratio (defined as the ratio of (i) (A) chargeoffs minus (B) cash
recoveries, minus (C) all unearned interest or finance charges thereon, all
calculated for the twelve (12) month period then ending, to (ii)
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the average of Net Contracts for such period) to be greater than .0750:1.0."
6.7 Restriction on Fundamental Changes. Except in connection with the
Restructuring Transactions, Obligor shall not acquire, form, or make any
Investment in any new Subsidiary of Obligor, change its corporate or fictitious
business names, change the nature of its business, open any additional retail or
warehouse locations, enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify its capital stock, or liquidate, wind up, or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
assign, lease, transfer, or otherwise dispose of, in one transaction or a series
of transactions, all or any substantial part of its business or Assets, whether
now owned or hereafter acquired, or acquire by purchase or otherwise, all or
substantially all the business or Assets of, or stock or other evidence of
beneficial ownership of, any Person, except:
(a) Obligor may sell, assign, transfer, convey, or otherwise
dispose of any of its Assets in accordance with the provisions of Section 6.9
hereof;
(b) upon thirty (30) calendar days prior written notice to Agent,
Obligor may change its corporate name;
(c) BCE may engage in Permitted Expansions;
(d) BCE may enter into new real property leases for, or may
otherwise acquire, additional retail space not exceeding 15,000 square feet per
location, and not exceeding three locations in any one fiscal year of Obligor,
even if such transactions do not qualify as Permitted Expansions;
(e) BCE may form a wholly-owned Subsidiary of BCE, to be named
"Discount Central Stores" or a substantially similar name; provided, however,
that Obligor may not make Investments in, or sell assets to, or otherwise
conduct business with such Subsidiary, without having first obtained any waiver
or consent otherwise required under this Agreement from the Required Banks or
the Banks, as the case may be.
6.8 Sales and Lease-Backs. Obligor shall not become liable, directly or
indirectly, as lessee or as guarantor or other surety with respect to any lease,
whether an Operating Lease or a Capitalized Lease, of any Assets, whether now
owned or hereafter acquired:
(a) which Obligor has sold or transferred or is to sell or transfer
to any other Person; or
(b) which Obligor intends to use for substantially the same purpose
as any other Asset which has been or is to be sold or transferred by Obligor to
any Person in
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connection with such lease, unless such sale or transfer is permitted pursuant
to Section 6.9 hereof, without aggregation.
6.9 Sale of Assets. Other than in connection with the Restructuring
Transactions, Obligor shall not sell, assign, transfer, convey, or otherwise
dispose of any of its Assets, whether now owned or hereafter acquired, except
for:
(a) the sale or other disposition by Obligor of Assets in the
ordinary and usual course of business, in accordance with past practices;
(b) with the prior written consent of Required Banks, the sale or
other disposition of any of the business or Assets of Obligor outside of the
ordinary and usual course of business for not less than the fair value thereof;
for purposes of this Section 6.9(b), the fair value of any Asset of Obligor
shall be determined by Obligor's board of directors, and any such determination
evidenced by a resolution of such board of directors shall be conclusive in the
absence of manifest error;
(c) involuntary sales or other dispositions of any of the business
or Assets of Obligor; provided, however, that, except to the extent otherwise
provided herein (including Section 5.6 hereof), Obligor shall pay to Agent one
hundred percent (100%) of the Net Cash Proceeds arising from any such
involuntary sale or other disposition, which amount shall be paid to Agent to
reduce the Loans in accordance with Section 2.12 of this Agreement;
(d) in addition to the other sales or other dispositions permitted
under this Section 6.9, the sale or other disposition by Obligor of any business
or Assets of de minimis value; for the purposes of this Section 6.9(d), the term
de minimis value shall mean: (i) with respect to any transaction, Assets with
respect to which the aggregate of Obligor's share of the fair value thereof does
not exceed Fifty Thousand Dollars ($50,000); and (ii) for any consecutive twelve
(12) month period during the term of this Agreement, Assets with respect to
which the aggregate of Obligor's share of the fair value thereof does not exceed
Two Hundred Thousand Dollars ($200,000), without any right to carry forward; for
purposes of this Section 6.9(d), the fair value of any Asset of Obligor shall be
determined by Obligor's board of directors, and any such determination evidenced
by a resolution of such board of directors shall be conclusive in the absence of
manifest error; and
(e) the sale by BCE and Central Ram to Borrower, and the purchase
by Borrower from BCE and Central Ram, of Contracts, in accordance with the
Financing Agreement.
At the time of any sale or other disposition under clause (c) of
this Section 6.9, Obligor shall deliver to Agent a certificate, duly executed by
a Responsible Officer of Obligor, setting forth in detail the determination of
the Net Cash
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Proceeds of such sale or other disposition and such other information as is
necessary to demonstrate compliance with clause (c).
Upon satisfactory arrangements to be mutually agreed upon by
Obligor and Agent in connection with any sale or other distribution permitted by
this Section 6.9, Agent shall, at Obligor's expense, execute and deliver all
agreements and documents as may reasonably be requested to effect a release of
the Liens held by Agent on the Assets which are the subject of any such sale or
other disposition.
6.10 Transactions with Shareholders and Affiliates. Except for the
Restructuring Transactions and any transaction expressly permitted by any other
section of this Agreement, and except as otherwise disclosed in the Disclosure
Statement with respect to management fees, Obligor shall not enter into or
permit to exist, directly or indirectly, any transaction (including the
purchase, sale, lease, or exchange of any Asset or the rendering of any service)
with any holder of five percent (5%) or more of any class of equity securities
of Obligor or any of its Affiliates, or with any Affiliate of Obligor or of any
such holder, on terms that are less favorable to Obligor than those terms which
might be obtained at the time from Persons who are not such a holder or
Affiliate, or if such transaction is not one in which terms could be obtained
from such other Person on terms that are not negotiated in good faith on an
arm's length basis. Prior to Obligor engaging in any such transaction with a
Person described in this Section 6.10, the board of directors of Obligor shall
determine that such transaction has been negotiated in good faith and on an
arm's length basis; such determination shall be conclusive and be evidenced by a
resolution of the board of directors of Obligor; provided, however, that no
member of such board of directors affiliated (except by virtue of being members
of the board of directors or by being employed by Obligor) with any such
Affiliate shall participate in such determination with respect to transactions
in which such holder or Affiliate is a participant.
The foregoing provisions of this Section 6.10 notwithstanding: (a)
BCE and Central Ram may sell to Borrower, and Borrower may purchase from BCE and
Central Ram, Contracts, in accordance with the Financing Agreement; (b) except
as permitted in the foregoing clause (a), at no time shall Obligor sell, assign,
discount, transfer, factor or otherwise dispose of any of its Contracts,
accounts, chattel paper, or other rights to payment to Finance, or to any other
Affiliate of Obligor at any time engaged in the business of providing financing
to consumers (collectively hereinafter "Consumer Finance Affiliates"), without
first obtaining the prior written consent of Required Banks; (c) Unless Obligor
first shall have obtained the written consent of Required Banks, at no time
shall Obligor or any Consumer Finance Affiliate market or promote the products
or services of any Consumer Finance Affiliate to customers or prospective
customers of Obligor for the purposes of seeking to cause such customers or
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prospective customers to finance their purchases from Obligor by means of loans
or advances from a Consumer Finance Affiliate rather than by means of entering
into Contracts, chattel paper or other financing arrangements directly with
Obligor, provided that nothing in this clause (c) shall restrict the ability of
any Consumer Finance Affiliate to offer financing to, or to make loans or
advances to, customers or prospective customers of Obligor for any lawful
purpose, (i) so long as such financing, loan, or advance is not in fact
restricted to being used solely for the purpose of paying for or financing
purchases from Obligor, (ii) so long as any reference in the advertising,
promotional materials, disclosures or documentation utilized in connection with
such offer, loan, or advance to the ability, or legal or contractual right, to
use such financing, loan, or advance to pay for or finance purchases from
Obligor, or any reference in the advertising, promotional materials, disclosures
or documentation utilized in connection with such offer, loan, or advance to any
absence of restrictions upon the use of such financing, loan, or advance, does
not by its terms affirmatively promote the use of such financing, loan, or
advance for the purpose of financing or paying for purchases from Obligor in
preference to other permissible uses of such financing, loan, or advance, and
(iii) without regard to whether in fact such customers or prospective customers
ultimately do use all or part of the proceeds of such loans or advances to pay
for or finance purchases form Obligor; (d) Any usage by any Consumer Finance
Affiliate of the premises, personnel, facilities, or equipment of Obligor, or
any sharing of any same with Obligor, shall occur only pursuant to and in
accordance with a written expense allocation plan pertaining to same, which plan
shall have previously been submitted to Agent and approved by Required Banks;
and (e) Notwithstanding clause (d) immediately above, Obligor may grant any
Consumer Finance Affiliate access to, and permit any Consumer Finance Affiliate
to utilize, computer data pertaining to customers of Obligor and their credit
and payment histories, including customer lists and mailing lists, without
requiring compensation or payment from such Consumer Finance Affiliate, so long
as such Consumer Finance Affiliate provides Obligor with free access to its
corresponding data and information, and so long as such Consumer Finance
Affiliate maintains the confidence of, and does not further divulge, any data
and information obtained from Obligor.
6.11 Conduct of Business. Subject to Section 6.7 hereof, Obligor shall
not engage in any business other than the business in which it is engaged as of
the Signing Date or any business or activities (including the provision of
consumer financing to customers of its retail store) substantially similar or
related thereto; provided, however, that, in any event, neither Borrower nor BCE
shall engage in the business of a finance lender (as defined in Section 22009 of
the California Financial Code) without first duly obtaining a license to do so
from the California Commissioner of Corporations.
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6.12 Issuance of Preferred Stock. Without the prior written consent of
Required Banks, Obligor shall not create or issue any class or series of
Preferred Stock.
6.13 Prepayment of Indebtedness. Except in connection with any
refinancing permitted pursuant to Section 6.1(j) hereof, Obligor shall not
prepay, redeem, or purchase any of its Indebtedness evidenced by the Perelman
Subordinated Note, except that Obligor shall be entitled to the benefit of its
rights and shall be entitled to perform its obligations provided for in this
Agreement, the Notes, and the Ancillary Documents.
6.14 Use of Proceeds. Borrower shall use the proceeds of the Loans made
hereunder solely for working capital purposes, including the purchase of
Contracts from BCE and Central Ram pursuant to the Financing Agreement.
Commercial Letters of Credit shall be used solely to facilitate the importation
of goods by Obligor. Standby Letters of Credit shall be used solely for purposes
acceptable to all Banks (provided that any Standby Letter of Credit issued for a
purpose specifically provided for in the definition of "Standby Letter of
Credit" shall be deemed to be used for a purpose acceptable to all Banks), and
shall not be used to support obligations relating to workers' compensation.
6.15 ERISA. Obligor shall not:
(a) do any of the following which in the aggregate would
reasonably be expected to have a Material Adverse Effect on Obligor:
(i) engage in any transaction which it knows or has reason
to know could result in a civil penalty assessed pursuant to
Section502(i) of ERISA or a tax imposed by Section4975 of the Code;
(ii) fail to make any payments to any Multiemployer Plan that
Obligor or an ERISA Affiliate may be required to make under any
agreement relating to such Multiemployer Plan, or any law pertaining
thereto;
(iii) voluntarily terminate any Plan if such termination could
result in the imposition of a Lien on the Assets of Obligor or an ERISA
Affiliate under Section4068 of ERISA;
(iv) fail to make any required contribution to any Plan
subject to Section412(n) of the Code that with the passage of time
would likely result in a Lien upon the Assets of Obligor or an ERISA
Affiliate;
(v) adopt any amendment to a Plan the effect of which is to
create or increase the "unfunded current liability" under the Plan as
defined in Section302(d)(8)(A) of ERISA or which amendment will
adversely affect Obligor's cash flow; or
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(b) permit the present value of all benefits on a termination
basis (irrespective of whether vested) under all Plans (excluding unfunded
deferred compensation agreements or other arrangements of a similar nature
whether or not subject to ERISA and welfare plans not subject to the funding
requirements of ERISA) that have assets (including accrued contributions for the
current plan year on a daily weighted average, provided that such accrued
contributions do not materially vary from the amount of the contributions
actually received by the plan for the prior plan year, on a daily weighted
average) less than benefits (irrespective of whether vested), to exceed the
"current value" as defined in Section3(26) of ERISA of the Assets of such Plans.
6.16 Misrepresentations. Obligor shall not furnish Agent or any Bank
any certificate or other document that: (a) contains any untrue statement of
material fact; or (b) omits to state a fact necessary to make it not materially
misleading in light of the circumstances under which it was furnished.
6.17 Change in Location of Chief Executive Office and Assets. Obligor
shall not, without first giving Agent thirty (30) calendar days prior written
notice of any proposed relocation, relocate its chief executive office or move
any of its tangible Assets to a location other than those locations identified
in the Disclosure Statement. To the extent Obligor timely gives Agent such
notice, such notice shall be deemed automatically to amend the Disclosure
Statement.
6.18 Warehouse Receipts. Obligor shall not store its inventory with a
bailee, warehouseman, or similar Person where such storage is evidenced by
negotiable warehouse receipts.
6.19 Margin Regulation. Obligor shall not use any portion of the
proceeds of any of the Loans in any manner which might cause the Borrowings, the
application of such proceeds, or the transactions contemplated by this Agreement
to violate Regulations G, T, U, or X of the Federal Reserve Board or any other
regulation of such board or to violate the Exchange Act.
6.20 Amendments or Waivers of Certain Documents. Obligor shall not
agree to any termination or waiver of, or any amendment, modification, or
supplement to, any term or provision of the Stock Purchase Agreement or the
Perelman Subordinated Note, which (a) could reasonably be expected to have a
material adverse effect on any right or interest of Agent or any Bank or (b)
relates to a term or provision regarding the time of any payment or any rate of
interest.
6.21 Amendment of Rewrite Policy. Obligor shall not amend, supplement
or otherwise modify any material term or provision of its Rewrite Policy. On
each Anniversary Date, Obligor shall deliver to Agent a certificate from
Obligor's chief financial officer or controller setting forth Obligor's Rewrite
Policy as then in effect.
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6.22 Change of Fiscal Periods. Obligor shall not change its fiscal year
or any other fiscal period with respect to which it reports financial results.
6.23 Compliance by Central Ram. Obligor shall cause Central Ram to
perform each and every covenant contained in Article VI; provided, that for
purposes of this Section 6.23, each reference to Obligor contained in Article VI
shall be deemed to be a reference to Central Ram; provided, further, that all
calculations shall be made only on a consolidated basis; and provided, further,
that as long as Central Ram is a wholly-owned subsidiary of Obligor, Central Ram
may pay dividends or distributions to Obligor to the extent lawful.
6.24 Negative Pledge by CFAC. Obligor shall not cause, suffer, or
permit CFAC to grant a security interest on (a) the capital stock of Borrower,
or (b) any other Assets of CFAC (other than the capital stock of the
Subsidiaries of CFAC).
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. The occurrence of any one or more of the
following events, acts, or occurrences shall constitute an event of default
("Event of Default") hereunder:
(a) Failure to Make Payments when Due.
(i) Borrower shall fail to pay any amount owing hereunder or
under the Notes with respect to the principal of any of the Loans when
such amount is due, whether at stated maturity, as a result of a
mandatory repayment requirement, by acceleration, by notice of
prepayment, or otherwise; or
(ii) Borrower shall fail to pay, within five (5) calendar days
of the date when due, any amount owing hereunder or under the Notes
with respect to interest on any of the Loans, with respect to the fees,
or with respect to any other amounts (including fees, costs, or
expenses), or any other Secured Indebtedness, other than principal
payable in connection herewith; or
(b) Breach of Certain Covenants.
(i) Obligor shall fail to perform or comply fully with any
covenant, term, or condition contained in Article VI or the last
sentence of Section 5.9; or
(ii) Obligor shall default in the performance of or compliance
with any term contained in this Agreement, other than: (1) those
referred to in Sections 7.1(a), 7.1(b)(i), 7.1(b)(iii), and 7.1(d); or
(2) those set forth in the last sentence of Section 5.1 and the last
sentence of Section 5.9, and such default shall not have been remedied
or waived within thirty (30) calendar days after receipt of notice from
Agent of such default; or
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(iii) Obligor shall default in the performance of or compliance
with any term contained in the last sentence of Section 5.1 and such
default shall not have been remedied or waived within ten (10) calendar
days after receipt of notice from Agent of such default; or
(c) Default in Other Agreements.
(i) Obligor shall default (as principal, guarantor, or other
surety) in the payment when due (subject to any applicable notice or
grace period), whether at stated maturity or otherwise, of any monetary
obligation with respect to (howsoever designated) any Indebtedness,
whether such Indebtedness now exists or shall hereafter be created and
such default gives rise to a right of acceleration; provided, however,
that no Event of Default under this clause (i) shall occur or result
from a default in the payment of any monetary obligation with respect
to any Indebtedness of, or Indebtedness guaranteed by, Obligor, which
default is inadvertent or the result of an oversight or which
obligation is being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and the amount of which,
when added to the amount of all other such Indebtedness in default
either through inadvertence or oversight or that is being contested in
compliance herewith, does not exceed Two Hundred Thousand Dollars
($200,000); or
(ii) Any non-monetary event of default as defined in any
mortgage, indenture, interest rate swap agreement, or instrument under
which there may be issued, or by which there may be secured or
evidenced, any Indebtedness of, or Indebtedness guaranteed by, Obligor,
whether such Indebtedness now exists or shall hereafter be created,
shall occur and be continuing and such event of default gives rise to a
right of acceleration; provided, however, that no Event of Default
under this clause (ii) shall occur or result from an event of default
in any Indebtedness of, or Indebtedness guaranteed by, Obligor, which
is the result of inadvertence or oversight or which is being contested
in good faith by appropriate proceedings promptly instituted and
diligently conducted and the amount of which, when added to the amount
of all other such Indebtedness in default either through inadvertence
or oversight or that is being contested in
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compliance herewith, does not exceed Two Hundred Thousand Dollars
($200,000); or
(d) Breach of Representation or Warranty. Any financial statement,
representation, warranty, or certification made or furnished by Obligor under
this Agreement or in any statement, document, letter, or other writing or
instrument furnished or delivered by or on behalf of Obligor to Agent or any
Bank pursuant to or in connection with this Agreement or as an inducement to
Agent or any Bank to enter into this Agreement shall, at any time, prove to have
been materially false, incorrect, or incomplete when made, effective, or
reaffirmed, as the case may be; or
(e) Involuntary Bankruptcy.
(i) If an involuntary case seeking the liquidation or
reorganization of Obligor under Chapter 7 or Chapter 11, respectively,
of the Bankruptcy Code or any similar proceeding shall be commenced
against Obligor under any other applicable law and any of the following
events occur: (1) Obligor consents to the institution of the
involuntary case or similar proceeding; (2) the petition commencing the
involuntary case or similar proceeding is not timely controverted; (3)
the petition commencing the involuntary case or similar proceeding is
not dismissed within sixty (60) calendar days of the date of the filing
thereof; provided, however, that, during the pendency of such period,
Banks shall be relieved of their obligations to make additional Loans;
(4) an interim trustee is appointed to take possession of all or a
substantial portion of the Assets of, or to operate all or any
substantial portion of the business of, Obligor; or (5) an order for
relief shall have been issued or entered therein; or
(ii) A decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator,
custodian, trustee, or other officer having similar powers over Obligor
to take possession of all or a substantial portion of the Assets of, or
to operate all or a substantial portion of the business of, Obligor
shall have been entered and, within thirty (30) calendar days from the
date of entry, is not vacated, discharged, or bonded against, or any
similar relief shall be granted against Obligor under any applicable
federal or state law and, within thirty (30) calendar days from the
date of entry, is not vacated, discharged, or bonded against; provided,
however, that, during the pendency of such period, Banks shall be
relieved of their obligations to make additional Loans; or
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(f) Voluntary Bankruptcy. Obligor shall institute a voluntary case
seeking liquidation or reorganization under Chapter 7 or Chapter 11,
respectively, of the Bankruptcy Code; or Obligor shall file a petition, answer,
or complaint or shall otherwise institute any similar proceeding under any other
applicable law, or shall consent thereto; or Obligor shall consent to the
conversion of an involuntary case to a voluntary case; or Obligor shall consent
or acquiesce to the appointment of a receiver, liquidator, sequestrator,
custodian, trustee, or other officer with similar powers to take possession of
all or a substantial portion of its Assets or to operate all or a substantial
portion of the business of Obligor; or Obligor shall generally fail to pay debts
as such debts become due or shall admit in writing its inability to pay its
debts generally; or Obligor shall make a general assignment for the benefit of
creditors; or the board of directors of Obligor (or any committee thereof)
adopts any resolution or otherwise authorizes, in writing, action to approve any
of the foregoing; or
(g) Judgments and Attachments.
(i) Obligor shall suffer any money judgment(s), writ(s), or
warrant(s) of attachment, or similar process(es) involving payment of
money in an amount of Two Hundred Thousand Dollars ($200,000) or more,
individually or in the aggregate, in excess of any insurance coverage
with respect thereto (as to which the insurer has not disputed its
liability in respect of such coverage), and such judgment, writ,
warrant, or similar process shall remain undischarged in accordance
with its terms and the enforcement thereof shall be unstayed and
either: (A) a proposed sale under an enforcement proceeding commenced
by any creditor thereupon shall have been noticed, or is scheduled, to
take place within five (5) calendar days; or (B) there shall have been
a period of forty-five (45) calendar days during which stays of such
judgment, writ, warrant, or similar process, by reason of pending
appeals or otherwise, were not in effect; or
(ii) A judgment creditor shall obtain possession of any of the
Assets of Obligor, which Assets constitute a material portion of the
Assets of Obligor, by any means, including levy, distraint, replevin,
or self-help; or
(h) Dissolution. Any order, judgment, or decree shall be entered
decreeing the dissolution of Obligor, and such order shall remain undischarged
or unstayed for a period in excess of twenty (20) calendar days; or
(i) ERISA Liabilities.
(i) Any Termination Event occurs which can reasonably be
expected to result in a liability by
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Obligor or an ERISA Affiliate which would have a Material Adverse
Effect on Obligor; or
(ii) Failure to make full payment when due of all amounts
which, under the provisions of any Plan or applicable law, Obligor or
an ERISA Affiliate is required to pay as a contribution thereto, which
would reasonably be expected to have a Material Adverse Effect on
Obligor; or
(iii) Obligor or any ERISA Affiliate creates an accumulated
funding deficiency within the meaning of Section302 of ERISA or
Section412 of the Code, irrespective of whether waived, with respect to
any Plan which would reasonably be expected to have a Material Adverse
Effect on Obligor; or
(iv) Obligor or an ERISA Affiliate shall have incurred or
received notice of withdrawal liability from a Multiemployer Plan which
would reasonably be expected to have a Material Adverse Effect on
Obligor; or
(v) Any Lien shall attach to any of the Assets of Obligor or
an ERISA Affiliate under the Pension Protection Act; or
(j) Termination of Ancillary Documents. Any of the Ancillary
Documents shall cease to be in full force and effect for any reason other than:
(i) any act or omission of Agent or Banks necessary for the perfection of Liens
in favor of Agent or any Bank; or (ii) a release or termination thereof upon the
full payment and satisfaction of the Indebtedness due hereunder and under the
Notes; or (iii) upon the written consent of Required Banks; or (iv) a
termination of any Ancillary Document in accordance with its terms; or
(k) Change of Control. At any time from and after the Signing Date,
a Change of Control Event occurs; or
(l) Change of Senior Management. At any time from and after the
Signing Date, Obligor shall not have in office both (i) a president or chief
operating officer, and (ii) a chief financial officer; or
(m) Conditions Subsequent. Obligor shall fail to observe or perform
any or all of the conditions subsequent set forth in Section 3.4 hereof and such
failure shall not have been remedied or waived within ten (10) calendar days
after receipt of notice from Agent of such failure; or
(n) Material Adverse Effect. After the Signing Date, there shall
occur an event or condition that shall have a Material Adverse Effect on
Obligor; or
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(o) Defaults Relating to Central Ram. Any event specified in
Section 7.1(c), (d), (e), (f), (g), (h), (i) or (n) occurs with respect to
Central Ram and, for purposes of this Section 7.1(o), each reference to Obligor
contained in each such subsection shall be deemed to be a reference to Central
Ram; or any default by Central Ram under any Ancillary Document to which it is a
party, or any such Ancillary Document is revoked, terminated or becomes
unenforceable or becomes ineffective or is otherwise unenforceable against
Central Ram for any reason other than: (i) any act or omission of Agent or Banks
necessary for the perfection of Liens in favor of Agent or any Bank; or (ii) a
release or termination thereof upon the full payment and satisfaction of the
Indebtedness due hereunder and under the Notes; or (iii) upon the written
consent of Required Banks; or (iv) a termination of any Ancillary Document in
accordance with its terms.
7.2 Remedies. Upon the occurrence of an Event of Default:
(a) If such Event of Default arises under subsections (e) or (f) of
Section 7.1 hereof, or a comparable Event of Default arises with respect to
Central Ram, then the Commitment hereunder shall immediately terminate and the
unpaid principal amount of and any accrued and unpaid interest on the Loans and
any other amounts owing hereunder, under the Notes, or under the Ancillary
Documents shall automatically become immediately due and payable, without
presentment, demand, protest, notice, or other requirements of any kind, all of
which are hereby expressly waived by Obligor; and
(b) In the case of any other Event of Default and during its
continuance, Required Banks may request Agent to and Agent shall thereupon, by
written notice to Obligor, declare the Commitment hereunder terminated and the
unpaid principal amount of and any accrued and unpaid interest on the Loans and
any other amounts owing hereunder, under the Notes, or under the Ancillary
Documents to be, and the same shall immediately become due and payable, without
presentment, demand, protest, further notice, or other requirements of any kind,
all of which are hereby expressly waived by Obligor.
Upon acceleration as provided in subsections (a) and (b) hereof,
Agent, upon the request of Required Banks, without notice to or demand upon
Obligor, which are expressly waived by Obligor to the fullest extent permitted
by law, shall be entitled to proceed to protect, exercise, and enforce its
rights and remedies hereunder, under the Ancillary Documents, or the Notes, or
any other rights and remedies as are provided by law or equity. Required Banks
may determine, in their sole discretion, the order and manner in which Banks'
rights and remedies are to be exercised. All payments received by Agent or
Banks, or any one or more of them, shall be applied as follows (regardless of
how each Bank may treat the payments for the purpose of its own accounting):
first, to all out-of-pocket
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costs and expenses (including reasonable attorneys' fees) incurred by Agent, or
Banks, or any of them, in enforcing any Secured Indebtedness, or in collecting
any payments due hereunder or under the Notes; second, to all fees due and owing
to Agent; third, to all fees due and owing to Banks, pro rata, to each Bank,
based upon each Bank's share of the Commitment; fourth, to accrued and unpaid
interest on the Loans; fifth, to principal amounts of the Loans outstanding;
sixth, pro rata to any other Indebtedness of Obligor owing to Agent or Banks, or
any of them; and seventh, to Obligor subject to any rights owing to third
Persons. For purposes of the foregoing, regular periodic payments under Hedge
Agreements shall be deemed interest on the Loans, and termination payments under
Hedge Agreements shall be deemed principal of the Loans.
ARTICLE VIII
THE AGENT AND THE BANKS
8.1 Appointment and Powers of Agent. Each Bank hereby appoints and
authorizes Agent to take such action as agent on its behalf and to exercise such
powers and discretion under this Agreement and the Ancillary Documents as are
delegated to Agent by the terms hereof and thereof, together with such powers as
are reasonably incidental thereto. Without limiting the foregoing, each Bank
hereby expressly authorizes Agent to execute, deliver, and perform its
obligations under this Agreement and each of the Ancillary Documents to which
Agent is a party, and to exercise all rights, powers, and remedies that Agent
may have hereunder or thereunder. As to any matters not expressly provided for
by this Agreement or the Ancillary Documents (including enforcement or
collection of the Notes), Agent (which term as used in this sentence, in Section
8.2 hereof, in Section 8.5 hereof, in the first sentence of Section 8.6 hereof,
in Section 10.1 hereof, and in Section 10.2 hereof shall include reference to
its Affiliates, including, without limitation, BASI, and to its own and its
Affiliates' officers, directors, employees, and agents) shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of Required Banks, and such instructions
shall be binding upon all Banks and all holders of the Notes; provided, however,
that Agent shall not be required to take any action which exposes Agent to
personal liability or which is contrary to this Agreement, the Ancillary
Documents, the Notes, or applicable law. Agent agrees to give to each Bank
prompt notice of each notice given to it by Obligor pursuant to the terms of
this Agreement or the Ancillary Documents.
8.2 Agent's Reliance. Agent shall not be liable for any action taken or
omitted to be taken by it under or in connection with this Agreement, the Notes,
or any Ancillary Document, except for its own gross negligence or willful
misconduct. Without limiting the generality of the foregoing, Agent: (a) may
treat the payee of any Note as the holder thereof
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until Agent receives and accepts an assignment and acceptance entered into by
the Bank which is the payee of such Note, as assignor, and an assignee as
provided in Section 11.8 hereof; (b) may consult with legal counsel, independent
public accountants, and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants, or experts; (c) makes no warranty or
representation to any Bank and shall not be responsible to any Bank for any
statements, warranties, or representations made in or in connection with this
Agreement, the Notes, or any Ancillary Document; (d) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the terms,
covenants, or conditions of this Agreement, the Notes, or any of the Ancillary
Documents on the part of any Person party thereto or to inspect any Asset
(including the books and records) of Obligor; (e) shall not be responsible to
any Bank for the due execution, legality, validity, enforceability, genuineness,
sufficiency, or value of this Agreement, the Notes, or any Ancillary Document,
or any other instrument or document furnished pursuant hereto or thereto; and
(f) shall incur no liability under or in respect of this Agreement, the Notes,
or any Ancillary Document by acting upon any notice, consent, certificate, or
other instrument or writing (which may be sent by telegram, cable,
telefacsimile, or telex) believed by it to be genuine and signed or sent by the
proper Person or Persons.
8.3 Defaults. Agent shall not be deemed to have knowledge of the
occurrence of an Event of Default or Unmatured Event of Default (other than the
non-payment of principal of or interest on Loans or of Fees) unless Agent has
received notice from a Bank or Obligor specifying the occurrence of such Event
of Default or Unmatured Event of Default and stating that such notice is a
"Notice of Default." In the event that Agent receives such a notice of the
occurrence of an Event of Default or Unmatured Event of Default, Agent shall
give prompt notice thereof to Banks (and shall give each Bank prompt notice of
each such non-payment). Agent shall (subject to Sections 8.1, 8.5, and 8.7
hereof) take such action with respect to such Event of Default or Unmatured
Event of Default as shall be directed by Required Banks; provided, however,
that, unless and until Agent shall have received such directions, Agent may (but
shall not be obligated to) take such action, or refrain from taking such action,
with respect to such Event of Default or Unmatured Event of Default as it shall
in its sole and absolute discretion deem advisable in the best interest of
Banks.
8.4 Rights as a Bank. With respect to its Commitment and the Loans made
by it, BofA (and any successor acting as Agent), in its capacity as a Bank
hereunder, shall have the same rights and powers hereunder as any other Bank and
may exercise the same as though it were not Agent, and the term "Bank" or
"Banks" shall, unless otherwise expressly indicated, include BofA (and any
successor acting as Agent) in its individual capacity. BofA (and any successor
acting as Agent), as if it were not
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Agent, and its Affiliates may (without having to account therefor to any Bank)
accept deposits from, lend money to, act as trustee under indentures of and
generally engage in any kind of banking, trust, or other business with Obligor
or any of its Affiliates and may accept fees and other consideration from
Obligor or any of its Affiliates, for services rendered in connection with this
Agreement or otherwise without having to account for the same to Banks.
8.5 Indemnification. Each Bank hereby agrees to indemnify and hold
Agent harmless (to the extent not reimbursed on demand by Obligor), ratably
according to the respective principal amount of the Notes held by each of them
(or, if no principal is outstanding under the Notes at that time, according to
their share of the Commitment) from and against any and all losses, liabilities
(including liabilities for penalties), actions, suits, judgments, demands,
damages, costs, disbursements, or expenses (including attorneys' fees and
expenses) of any kind or nature whatsoever which are imposed on, incurred by, or
asserted against Agent in any way relating to or arising out of this Agreement,
the Notes, or the Ancillary Documents, or as a result of any action taken or
omitted to be taken by Agent; provided, however, that no Bank shall be liable
for any portion of any such losses, liabilities (including liabilities for
penalties), actions, suits, judgments, demands, damages, costs, disbursements,
or expenses resulting from the gross negligence or willful misconduct of Agent.
Without limiting the generality of the foregoing, each Bank hereby agrees, in
the ratio aforesaid, to reimburse Agent promptly following its demand for any
out-of-pocket expenses (including attorneys' fees and expenses) incurred by
Agent in connection with the preparation, execution, delivery, administration,
modification, amendment, or enforcement (whether through negotiations, legal
proceedings, or otherwise) of, or legal advice in respect of, its rights or
responsibilities under this Agreement, the Notes, or the Ancillary Documents, or
any of them or any other documents contemplated by this Agreement, to the extent
that Agent is not reimbursed, on demand, for such amounts by Obligor. Each
Bank's obligations under this paragraph shall survive the termination of this
Agreement and the discharge of Obligor's obligations hereunder.
8.6 Non-Reliance by Banks. Each Bank hereby acknowledges that it has,
independently of and without reliance upon Agent or any other Bank, and based
upon the financial statements referred to in Section 4.8 hereof and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Bank also acknowledges
that it will, independently of and without reliance upon Agent or any other
Bank, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own independent credit decisions in taking or
omitting to take action under or in connection with this Agreement. Agent shall
not be required to keep itself informed as to the performance or observance by
Obligor or any
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other Person of this Agreement, the Notes, or the Ancillary Documents, or to
inspect the Assets or books and records of Obligor or any of its Affiliates, or
any other Person. Except for notices, reports, and other documents and
information expressly required to be furnished to Banks by Agent hereunder,
Agent shall not have any duty or responsibility to provide any Bank with any
credit or other information concerning the affairs, financial condition, or
business of Obligor or its Affiliates which may come into the possession of
Agent or any of its Affiliates. Agent shall not have any fiduciary or quasi-
fiduciary duty to Banks and shall not be liable to any Bank except for gross
negligence in, or willful breach of, its undertakings hereunder.
8.7 Failure to Act. Except for action expressly required of Agent
hereunder, Agent shall in all cases be fully justified in failing or refusing to
act hereunder unless it shall be indemnified to its satisfaction by Banks
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action.
8.8 Excess Payments. If any Bank or other holder of a Note shall obtain
any payment or other recovery (whether voluntary, involuntary, by application of
offset, or otherwise) on account of principal of or interest on any Note in
excess of its pro rata share of payments and other recoveries obtained by all
Banks or holders of Notes, such Bank or other holder shall purchase from the
other Banks or holders such participation in the Notes held by them as shall be
necessary to cause such purchasing Bank or holder to share the excess payment or
other recovery ratably with each of the other Banks or holders; provided,
however, that, if all or any portion of the excess payment or other recovery is
thereafter recovered from such purchasing Bank or holder, the purchase shall be
rescinded and the purchase price restored to such Bank or other holder to the
extent of such recovery, but without interest.
8.9 Obligations Several. The obligations of each Bank hereunder are
several, and neither any Bank nor Agent shall be responsible for the obligation
of any other Person hereunder, nor will the failure by Agent or any Bank to
perform any of its obligations hereunder relieve Agent or any other Bank from
the performance of its respective obligation hereunder. Nothing contained in
this Agreement, and no action taken by any Bank or Agent pursuant hereto or in
connection herewith or pursuant to or in connection with the Notes, or the
Ancillary Documents shall be deemed to constitute Banks, together or with or
without Agent, a partnership, association, joint venture, or other entity.
8.10 Resignation by or Removal of Agent. Agent may resign at any time
as Agent under this Agreement and the Ancillary Documents by giving written
notice thereof to Banks and Obligor and may be removed at any time with or
without cause by Required Banks; provided, however, that no such resignation or
removal shall be effective until a successor Agent shall have been appointed and
accepted such appointment. Upon any such resignation or removal, Required Banks
shall have the right to appoint a successor Agent with the approval of Obligor,
which approval shall not be unreasonably withheld or delayed. If no successor
Agent shall have
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been so appointed by Required Banks, or a successor Agent appointed by Required
Banks shall not have accepted such appointment, within thirty (30) days after
the retiring Agent's giving of notice of resignation or Required Banks' removal
of the retiring Agent, then the retiring Agent may, on behalf of Banks, appoint
a successor Agent with the approval of Obligor, which approval shall not be
unreasonably withheld or delayed, which successor Agent shall be a commercial
bank organized under the laws of the United States of America or of any state
thereof having a combined capital and surplus of at least Three Hundred Million
Dollars ($300,000,000). Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all of the obligations, rights, powers, privileges, and
duties of the retiring Agent, and the retiring Agent shall be discharged from
its duties and obligations under this Agreement, and the Ancillary Documents.
After any retiring Agent's resignation or removal hereunder as Agent, the
provisions of this Article VIII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.
8.11 Intercreditor Agreements. Banks hereby authorize and direct Agent
on their behalf to negotiate, execute and deliver any intercreditor agreements
with Floor Plan Lenders required pursuant to Section 6.1(h).
ARTICLE IX
BANKS' REPRESENTATIONS
9.1 Investment Representation. Each Bank hereby represents to Borrower
and to each other Bank that it will make its Loans for its own account in the
ordinary course of its commercial lending business and not with a view to the
public distribution or sale of any Note held by such Bank.
9.2 Assignment of Interest in Notes; Compliance with Law.
Notwithstanding the provisions of Section 9.1 hereof, each Bank shall have the
right at any time and from time to time to do either or both of the following
without notice to any Person: (a) furnish one or more purchasers or potential
purchasers of all or any portion of the Loans or the Notes or an assignment
interest therein, with any and all information concerning Obligor which has been
supplied by Obligor to Agent or any Bank or obtained by other means by Agent or
any Bank; or (b) to sell, assign, pledge, hypothecate, syndicate, transfer, or
negotiate all or any portion of such Bank's interests in the Loans or the Notes
in accordance with the terms and conditions of Section 11.8 hereof. To the
extent that after the Closing Date other
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financial institutions, acceptable to Borrower and Agent, express an interest in
being a "Bank" hereunder, Obligor and Agent agree to execute such amendments or
new documentation (including new Notes) as may be necessary to reflect and join
such financial institutions as parties hereto and to reflect properly their pro
rata benefits and obligations hereunder.
9.3 Confidentiality. Each Bank agrees that Confidential Information
regarding Borrower and its operations, assets, and existing and contemplated
business plans shall be treated by such Bank in a confidential manner, and shall
not be disclosed by it to entities or Persons who are not parties to this
Agreement, except: (a) to counsel for and other advisors, accountants, and
auditors to such Bank; (b) as may be required by statute, decision, or judicial
or administrative order, rule, or regulation; (c) as may be agreed to in advance
by Borrower; and (d) in connection with any assignment, prospective assignment,
sale, prospective sale, or pledge or prospective pledge of a Bank's interests
hereunder provided that any such assignee, prospective assignee, purchaser,
prospective purchaser, pledgee, or prospective pledgee shall have agreed in
writing to take its interest hereunder subject to the terms hereof, including
those of this Section 9.3, or shall have entered into a confidentiality
agreement with Borrower or for the benefit of Borrower substantially upon the
terms of this Section 9.3.
ARTICLE X
EXPENSES AND INDEMNITIES
10.1 Expenses. Irrespective of whether the transactions contemplated hereby
shall be consummated, Borrower hereby agrees to pay on demand: (a) the
reasonable out-of-pocket costs and expenses of Agent incurred in connection with
the negotiation, preparation, execution, and administration of this Agreement,
the Notes, the Ancillary Documents, and all other agreements, instruments, and
documents contemplated hereby and thereby, and any amendments, modifications,
restatements, or waivers hereto and thereto; (b) the cost of delivering the
Notes to Banks pursuant to the provisions of this Agreement; (c) the reasonable
fees, expenses, and disbursements of counsel (including allocated fees,
expenses, and disbursements of in-house counsel of Agent) to Agent in connection
with the negotiation, preparation, reproduction, execution, delivery,
syndication, and administration (including semi-annual audits of the Collateral
and Obligor's books and records by Agent or Agent's representatives) of this
Agreement, the Notes, the Ancillary Documents, and all other agreements,
instruments, and documents contemplated hereby and thereby, and any amendments,
modifications, restatements, or waivers hereto or thereto; (d) filing,
recording, publication, appraisal, audit, and search fees paid or incurred by or
on behalf of Agent in connection with the transactions contemplated by, and the
administration of, this Agreement, the Notes, and the Ancillary Documents; (e)
the
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reasonable out-of-pocket costs and expenses (including reasonable attorneys'
fees and expenses, including allocated fees and expenses of in-house counsel of
Agent) incurred by Agent to correct any default or to enforce any provision of
this Agreement, any of the Notes, any of the Ancillary Documents, or any other
document or instrument contemplated hereby or thereby against Obligor; and (f)
the reasonable out-of-pocket costs and expenses (including reasonable attorneys'
fees and expenses, including allocated fees and expenses of in-house counsel of
Agent) incurred by Agent in connection with any bankruptcy or other insolvency
proceeding, reorganization, workout, composition, or other creditor arrangement
of Obligor.
10.2 Indemnity. In addition to the payment of expenses pursuant to
Section 10.1 hereof, and irrespective of whether the transactions contemplated
hereby shall be consummated, Obligor hereby agrees to indemnify, exonerate, pay,
and hold harmless Banks, Agent, and any holder of any interest in the Notes, and
the officers, directors, employees, and agents of and counsel to Banks, Agent,
and such holders (collectively, the "Indemnities" and individually, an
"Indemnitee") from and against any and all liabilities, obligations, losses,
damages, penalties, actions, causes of action, judgments, suits, claims, costs,
expenses, of any kind or nature whatsoever, including the reasonable fees and
expenses of counsel to Indemnities (including allocated fees and expenses of
in-house counsel of Agent), in connection with any investigative,
administrative, or judicial proceeding, irrespective of whether such Indemnitee
shall be designated a party thereto, which may be imposed on, incurred by, or
asserted against such Indemnitee, in any manner relating to or arising out of
this Agreement, any Loans hereunder, the use or intended use of the proceeds of
the Loans or the consummation of the transactions contemplated by this Agreement
(the "Indemnified Liabilities"); provided, however, that Obligor's obligations
to indemnify shall not extend to any losses, damages, liabilities, actions, or
claims against any Indemnitee arising as a result of the gross negligence or
willful misconduct of such Indemnitee. Each Indemnitee shall promptly notify
Obligor of each event of which it has knowledge which may give rise to a claim
under the indemnification provisions of this Section 10.2. If any investigative,
judicial, or administrative proceeding arising from any of the foregoing is
brought against any Indemnitee, Obligor, to the extent and in the manner
directed by such Indemnitee after consultation with Obligor, will resist and
defend such action, suit, or proceeding or cause the same to be resisted and
defended by counsel designated by Obligor (which counsel shall be reasonably
satisfactory to such Indemnitee); provided, however, that Obligor's obligation
to so resist or defend any such action, suit, or proceeding shall exist if and
only if Obligor is directed to do so by the Indemnitee. Such Indemnitee will use
its best efforts to cooperate in the defense of any such action, suit, or
proceeding. To the extent that the undertaking to indemnify, exonerate, pay, and
hold harmless set forth in this Section 10.2 may be unenforceable because it is
violative of any law or public policy as determined by a final
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judgment of a court of competent jurisdiction, Obligor shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The obligations of
Obligor under this Section 10.2 shall survive the termination of this Agreement
and the discharge of Obligor's other obligations hereunder.
ARTICLE XI
MISCELLANEOUS
11.1 No Waivers; Remedies. No failure or delay on the part of Agent,
any Bank, or any holder of any Note in exercising any right, power, privilege,
or remedy under this Agreement, the Notes, or any of the Ancillary Documents
shall impair or operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power, privilege, or remedy preclude any other or
further exercise thereof or the exercise of any other right, power, privilege,
or remedy. The waiver of any such right, power, privilege, or remedy with
respect to particular facts and circumstances shall not be deemed to be a waiver
with respect to other facts and circumstances. The remedies provided for under
this Agreement, the Notes, or the Ancillary Documents are cumulative and are not
exclusive of any remedies that may be available to Agent or any Bank, at law, in
equity, or otherwise.
11.2 Waivers and Amendments. No amendment, modification, restatement,
supplement, termination, or waiver of or to, or consent to any departure from,
any provision of this Agreement, the Notes, or the Ancillary Documents, shall be
effective unless the same shall be in writing and signed by Obligor, Agent, and
by or on behalf of Required Banks; provided, however, that no such amendment,
modification, supplement, termination, waiver, or consent, as the case may be,
which has the effect of: (a) reducing the amount of any sum payable by Borrower
to any Bank hereunder or under any Note or reducing the rate of interest payable
thereon or extending the Maturity Date or extending the time of payment of
interest or fees hereunder; (b) increasing the amount, or extending the stated
expiration or termination date of any Bank's portion of the Commitment
hereunder; (c) changing this Section 11.2 or Article VII or Sections 10.2 or
11.8 of this Agreement, (d) releasing any material portion of the Collateral
except to the extent expressly provided herein (including releases of Collateral
in connection with any Asset sale permitted by Required Banks) or in any of the
Ancillary Documents; (e) increasing the rates of advance on contracts or
inventory, or changing the cap on advances against inventory, relating to
computation of the Borrowing Base; or (f) releasing Obligor from the Ancillary
Documents to which it is a party except as expressly provided in such Ancillary
Documents; shall be effective unless the same shall be signed by or on behalf of
all Banks and Agent; provided further, however, that no such amendment,
modification, restatement, supplement, termination, waiver, or consent, as the
case may be, which has the effect of changing any definition or provision of
this
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Agreement requiring the consent of Agent or Required Banks, or some other
specified amount of Banks shall be effective unless the same shall be signed by
or on behalf of Agent, Required Banks, or such other specified amount of Banks,
as applicable; provided further, however, that no such amendment, modification,
restatement, supplement, termination, waiver, or consent, as the case may be,
which has the effect of: (i) increasing the duties or obligations of Agent
hereunder; (ii) increasing the standard of care or performance required on the
part of Agent hereunder; or (iii) reducing or eliminating the indemnities or
immunities to which Agent is entitled hereunder (including any amendment or
modification of the provisions of these clauses (i), (ii), and (iii) of this
Section 11.2) shall be effective unless the same shall also be signed by or on
behalf of Agent.
Any waiver of any provision of this Agreement, the Notes, or the
Ancillary Documents and any consent to any departure of Obligor from the terms
of any provisions of this Agreement, the Notes, or the Ancillary Documents shall
be effective only in the specific instance and for the specific purpose for
which given. In any event, no notice to, or demand on, Obligor shall entitle
Obligor to any other or further notice or demand in similar or other
circumstances.
11.3 Changes in Accounting Principles. (a) If any changes in accounting
principles from those used in the preparation of the financial statements
referred to in this Agreement are hereafter occasioned by the promulgation of
rules, regulations, pronouncements, or opinions of, or required by, the
Financial Accounting Standards Board or the American Institute of Certified
Public Accountants (or successors thereto or agencies with similar functions),
or there shall occur any change in Obligor's fiscal or tax years and, as a
result of any such changes, there shall result a change in the method of
calculating any of the financial covenants, negative covenants, standards, or
other terms or conditions found in this Agreement, or (b) if Obligor, for
prudent and reasonable business purposes, shall desire to change such accounting
principles or the application thereof (which change shall be consistent with
accounting principles then in effect pursuant to rules, regulations,
pronouncements, or opinions of the Financial Accounting Standards Board or the
American Institute of Certified Public Accountants) and such desired change
would result in a change in the method of calculating any of the financial
covenants, negative covenants, or other terms and conditions found in this
Agreement, then the parties hereto agree to enter into negotiations in order to
amend such provisions and the definition of "GAAP" set forth in Section 1.1
hereof so as to reflect equitably such changes with the desired result that the
criteria for evaluating the financial condition and performance of Obligor shall
be the same after such changes as if such changes had not been made.
11.4 Confirmation. Borrower and each Bank hereby agree that, upon
written request received from time to time by one from another, each will
confirm to the other, in writing, the
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aggregate unpaid principal amount of the Loans then outstanding under any Note.
Each Bank hereby agrees, upon written request received by it from time to time
from Borrower to make any Note held by it available for reasonable inspection by
Borrower at the office of such Bank during such Bank's regular business hours.
11.5 Notices. Except as provided in Sections 2.8 and 2.9 hereof, all
notices, demands, instructions, requests, and other communications required or
permitted to be given to, or made upon, any party hereto shall be in writing and
(except for financial statements and other related informational documents to be
furnished pursuant hereto which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by registered or certified mail,
postage prepaid, return receipt requested, or by prepaid telex, TWX,
telefacsimile, or telegraph (with messenger service specified) and shall be
deemed to be given for purposes of this Agreement on the day that such writing
is received by the Person to whom it is to be sent pursuant to the provisions of
this Agreement. Unless otherwise specified in a notice sent or delivered in
accordance with the foregoing provisions of this Section 11.5, notices, demands,
requests, instructions, and other communications in writing shall be given to or
made upon the respective parties hereto at their respective addresses (or to
their respective telex, TWX, or telefacsimile numbers) indicated on Exhibit 11.5
attached hereto.
11.6 Transfers of Notes. In the event that any Bank wishes to transfer
any Note or any interest therein pursuant to Section 11.8, it shall promptly
advise Agent and Borrower of such intended transfer. Agent and Borrower shall be
entitled to assume conclusively that no transfer of any Note has been made by
any holder unless and until Agent and Borrower shall have each received written
notice to the contrary. Each transferee of any Note shall take such Note subject
to the provisions of this Agreement and the Disclosure Statement, and to any
request made, waiver or consent given, or other action taken under or with
respect to this Agreement, the Ancillary Documents, and the Disclosure Statement
prior to the receipt by Agent and Borrower of written notice of such transfer
and, except as otherwise expressly provided in such notice, Agent and Borrower
shall be entitled to assume conclusively that the transferee named in such
notice shall thereafter be vested with all of the rights and powers of the payee
of such Note arising under this Agreement, such Note, the Ancillary Documents,
and any other agreements referred to herein. The foregoing is not meant to
abrogate or modify, and is subject to, the provisions of Section 11.8 of this
Agreement.
11.7 Availability of Funds. Unless Agent shall have been notified by a
Bank prior to the date upon which any Loan is to be made that such Bank does not
intend to make available to Agent such Bank's portion of such Loan, Agent may
assume that such Bank has made or will make such proceeds available to Agent on
such date and Agent may, in reliance upon such assumption (but shall not be
required to), make available to Borrower a
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corresponding amount. If such corresponding amount is not in fact made available
to Agent by such Bank, Agent shall be entitled to recover such amount on demand
from such Bank (or, if such Bank fails to pay such amount forthwith upon such
demand, from Borrower) together with interest thereon, in respect to each day
during the period commencing on the date such amount was made available to
Borrower and ending on the date Agent recovers such amount, at a rate, per annum
equal to the customary rate set by Agent for correction of errors among banks
for the first three (3) days and, thereafter, the applicable interest rate in
respect of such Loan. The provisions of this Section 11.7 are solely for the
benefit of Agent and Banks and their successors and assigns and are not intended
to benefit Borrower, its successors and assigns, or any other Person.
11.8 Successors and Assigns.
(a) This Agreement shall be binding upon, and inure to the benefit
of, the parties hereto and their respective successors and assigns; provided,
however, that Obligor may not assign or transfer any interest or rights
hereunder without the prior written consent of all Banks and any such prohibited
assignment shall be absolutely void; provided, further, that, no Bank may
assign, transfer, sell, pledge or grant participations in its rights or
obligations under the Loan Documents, except in accordance with subsection (b)
of this section, without the prior written consent of Borrower, Agent, and each
other Bank, which Borrower, Agent, and the other Banks may grant or withhold in
their discretion.
(b) Any transfer, sale or assignment by a Bank shall be by way of
"assignment" and not by way of "participation." Assignments may be made only to
Eligible Assignees that have been approved by Borrower and Agent, both of whom
agree not unreasonably to withhold or delay their consent. Assignments will not
be made of Loans or portions of the Commitment in aggregate amounts of less than
$7,500,000. Each such assignment by a Bank shall be of a constant and not a
varying percentage of all of the assigning Bank's rights and obligations under
this Agreement with respect to the Loans, the Letters of Credit, and the
Commitment. If an assignment by a Bank hereunder would result in such Bank's
share of the Commitment (after giving effect to such assignment) being reduced
to an amount less than $7,500,000, then, unless Agent agrees otherwise, such
Bank may not assign less than all of its share of the Commitment, and such
assignment must otherwise be in compliance with this subsection (b). An
assignment fee of $4,000 for each assignment will be payable to Agent by the
Bank making such assignment or the commercial banking institution to which such
assignment is made, as a condition of the effectiveness thereof. Notwithstanding
the foregoing, BofA will not reduce its pro rata share of the Commitment below
$15,000,000 without the prior written consent of Borrower (which Borrower hereby
agrees not unreasonably to withhold or delay), and no other Bank will reduce its
pro rata share of the Commitment below $7,500,000
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without the prior written consent of Borrower (which Borrower hereby agrees not
unreasonably to withhold or delay). Any assignment effected in accordance with
this section shall be documented by (i) the execution and delivery of an
Assignment and Acceptance; and (ii) the giving of notification to Borrower and
the other Banks by Agent of the identity of the assignor and assignee, the
amount of the Loans or Commitment assigned, and the effective date of the
assignment, whereupon, from and after the effective date of such assignment, the
assigning Bank shall be released and discharged from, and such assignee shall
assume, all rights, duties and obligations with respect to the interest so
assigned, and shall become a "Bank" for all purposes of the Loan Documents. Any
such assignment shall be made pro rata according to all of the assigning Bank's
Loans or Commitment. At such time, this Agreement shall be modified to reflect
the pro rata share of the Commitment of such new "Bank" and of the assigning
Bank, and if any such institution becomes a "Bank" while Loans are outstanding
hereunder, new Notes will be issued to such new "Bank" and to the assigning Bank
to the extent needed to reflect their revised pro rata share of the Commitment.
The foregoing notwithstanding, any Bank may at any time pledge all or any
portion of its rights relating to the Loans made under this Agreement to a
Federal Reserve Bank or an Affiliate of the pledging Bank; provided that no such
pledge shall release any Bank from its obligations hereunder.
(c) By executing and delivering an Assignment and Acceptance, the
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Bank assigns without recourse and
makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with
this Agreement or any other Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any other
Loan Document or any other instrument or document furnished pursuant hereto;
(ii) such assigning Bank makes no representation or warranty and assumes no
responsibility with respect to the financial condition of Borrower or the
performance or observance by Borrower of any of its obligations under this
Agreement or any other Loan Document or any other instrument or document
furnished pursuant hereto or thereto; (iii) such assignee confirms that it has
received a copy of this Agreement, together with copies of the financial
statements referred to in subsections 4.8(a) and (b) hereof such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon Agent, such assigning Bank or any other
Bank and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not taking
action under this Agreement; (v) such assignee confirms that it is an Eligible
Assignee; (vi) such assignee appoints and authorizes Agent to take such action
as Agent on its behalf and to exercise
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such powers under this Agreement as are delegated to Agent by the terms hereof,
together with such powers as are reasonably incidental thereto; and (vii) such
assignee agrees that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement are required to be performed by
it as a Bank.
(d) Agent shall maintain in its records a copy of each Assignment
and Acceptance delivered to and accepted by it and a register (the "Register")
for the recordation of the names and addresses of Banks, their respective shares
of the Commitment, the Loans made by each Bank and each repayment in respect of
the principal amount of such Loans of each Bank from time to time. The entries
in the Register shall be conclusive and binding for all purposes, absent
manifest error, and Borrower, Agent and Banks may treat each Person whose name
is recorded in the Register as a Bank hereunder for all purposes of this
Agreement. Failure to make recordation in the Register, or any error on such
recordation, shall not affect Borrower's obligations in respect of such Loans.
The Register shall be available for inspection by Borrower, Agent or any Bank at
any reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by
an assigning Bank and an assignee representing that it is an Eligible Assignee,
Agent shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit A-1 annexed hereto, and subject to receipt of
the written consent of the Borrower or Agent, if required hereby, (i) accept
such Assignment and Acceptance, (ii) record the information contained therein in
the Register and (iii) give prompt notice thereof to Borrower.
(f) Any Bank may, in connection with any assignment or proposed
assignment pursuant to this Section 11.8, disclose to the assignee or proposed
assignee any information relating to Borrower furnished to such Bank by or on
behalf of Borrower; provided that, prior to any such disclosure, the assignee or
proposed assignee shall agree to preserve the confidentiality of any
confidential information relating to Borrower received by it from such Bank.
11.9 Headings. Article and section headings used in this Agreement and
the table of contents preceding this Agreement are for convenience of reference
only and shall neither constitute a part of this Agreement for any other purpose
nor affect the construction of this Agreement.
11.10 Execution in Counterparts; Effectiveness. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original. All of such counterparts, taken together, shall
constitute but one and the same Agreement. This Agreement shall
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become effective upon the execution of a counterpart of this Agreement by each
of the parties hereto.
11.11 GOVERNING LAW. EXCEPT AS SPECIFICALLY SET FORTH IN ANY ANCILLARY
DOCUMENT: (A) THIS AGREEMENT, THE NOTES, AND THE ANCILLARY DOCUMENTS SHALL BE
DEEMED TO HAVE BEEN MADE IN THE STATE OF CALIFORNIA; AND (B) THE VALIDITY OF
THIS AGREEMENT, THE NOTES, AND THE ANCILLARY DOCUMENTS, AND THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE
PARTIES THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
11.12 Arbitration.
(a) This arbitration provision relates to and governs the
resolution of any controversies or claims between and among Obligor, Agent,
Collateral Agent and Banks (hereinafter in this provision collectively referred
to as the "Parties"), or any subset of them, that in any way relate or pertain
to the Loan Documents or the transactions or dealings among the Parties with
respect thereto, including but not limited to any controversies or claims that
arise from:
(i) This Agreement (including any renewals, restatements,
amendments, supplements, extensions or modifications of this Agreement)
or any other Loan Document;
(ii) Any document, agreement or procedure related to or
delivered in connection with this Agreement or any other Loan Document;
(iii) Any breach or violation by any Party of this Agreement
or any other Loan Document; or
(iv) Any claim for damages (whether in tort or contract)
resulting from any business conducted between the Parties or any subset
of them that in any way pertains to the Loan Documents or the
transactions contemplated thereby.
(b) At the request of any Party, any such controversies or claims
will be settled by arbitration in accordance with the United States Arbitration
Act. The United States Arbitration Act will apply even though this Agreement
provides that it is governed by California law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration. The arbitration will be conducted within Los Angeles County,
California.
(d) For purposes of the application of the statute of
limitations, the filing of an arbitration pursuant to
- 104 -
<PAGE> 111
this paragraph is the equivalent of the filing of a lawsuit, and any claim or
controversy which may be arbitrated under this paragraph is subject to any
applicable statute of limitations. The arbitrators will have the authority to
decide whether any such claim or controversy is barred by the statute of
limitations and, if so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable,
the arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may
be submitted to any authorized court of law to be confirmed and enforced.
(g) The procedure described above in this Section 11.12 will not
apply if the controversy or claim, at the time of the proposed submission to
arbitration, arises from or relates to an obligation owed to Collateral Agent,
Agent, or any Bank that is secured by real property located in California. In
this case, all affected Parties must consent to submission of the claim or
controversy to arbitration. If such affected Parties do not consent to
arbitration, the controversy or claim will be settled as follows:
(i) The affected Parties will designate a referee (or a
panel of referees) selected under the auspices of the American
Arbitration Association in the same manner as arbitrators are selected
in Association- sponsored proceedings;
(ii) The designated referee (or the panel of referees) will
be appointed by a court as provided in California Code of Civil
Procedure Section 638 and the following related sections;
(iii) The referee (or the presiding referee of the panel)
will be an active attorney or a retired judge; and
(iv) The award that results from the decision of the referee
(or the panel) will be entered as a judgment in the court that
appointed the referee, in accordance with the provisions of California
Code of Civil Procedure Sections 644 and 645.
(h) This provision does not limit the right of the Parties to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
- 105 -
<PAGE> 112
(iii) act in a court of law, before, during or after the
arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim, additional
or supplementary remedies, or the filing of a court action, does not constitute
a waiver of the right of the Parties, including the suing party, to submit the
controversy or claim to arbitration if the other party contests the lawsuit.
However, if the controversy or claim arises from or relates to an obligation to
Collateral Agent, Agent, or any Bank which is secured by real property located
in California at the time of the proposed submission to arbitration, this right
is limited according to the provision above requiring the consent of all
affected Parties to seek resolution through arbitration.
(j) If the Collateral Agent, Agent or any Bank forecloses against
any real property securing any obligation contained in any Loan Document, such
foreclosing Party has the option to exercise the power of sale under the deed of
trust or mortgage, or to proceed by judicial foreclosure.
11.13 Severability of Provisions. Any provision of this Agreement, the
Notes, or the Ancillary Documents which is illegal, invalid, prohibited, or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such illegality, invalidity, prohibition, or unenforceability
without invalidating or impairing the remaining provisions hereof or thereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
11.14 Survival of Agreements, Representations, and Warranties. All
agreements, representations, and warranties made herein shall survive the
execution and delivery of this Agreement, the Ancillary Documents, the Notes,
and the making of the Loans hereunder.
11.15 Setoff. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, each Bank and
each holder or transferee of any Note or any Person with any interest in any
Note is hereby authorized by Obligor at any time or from time to time, upon the
occurrence and during the continuance of any Event of Default, without notice to
Obligor or to any other Person, any such notice being hereby expressly waived to
the extent it may lawfully be so waived, to set off or to apply, any and all
deposits (general or special, time or demand, provisional or final, including
indebtedness evidenced by certificates of deposit, whether matured or unmatured,
but not including trust accounts) and any other indebtedness at any time owing
by that Bank or that subsequent holder to or for the credit or the
- 106 -
<PAGE> 113
account of Obligor, against and on account of the Secured Indebtedness,
including all claims of any nature or description arising out of or connected
with this Agreement, the Notes, or the Ancillary Documents, irrespective of
whether that Bank or that subsequent holder shall have made any demand under
this Agreement; provided, however, that Banks and the holders or transferee of
any Note and any Person with any interest in any Note shall refrain from
exercising such rights unless authorized to do so by Required Banks. After the
exercise by any Bank or any such subsequent holder of any right of setoff
against deposit accounts of Obligor maintained with that Bank or that subsequent
holder, that Bank or that subsequent holder shall give Obligor written notice
thereof, but without liability for the failure to do so, and no such failure of
notice shall affect the validity of such setoff.
11.16 Independence of Covenants. All covenants under this Agreement
shall be given independent effect so that if a particular action or condition is
not permitted by any one covenant, the fact that it would be permitted by
another covenant, by an exception thereto, or would otherwise be within the
limitations thereof, shall not avoid the occurrence of an Event of Default or
Unmatured Event of Default if such action is taken or condition exists.
11.17 Complete Agreement. This Agreement, together with the exhibits
and schedules hereto, the Disclosure Statement, the Notes, and the Ancillary
Documents is intended by the parties hereto as a final expression of their
agreement and is intended as a complete statement of the terms and conditions of
their agreement with respect to the subject matter of this Agreement.
11.18 Relationship to Prior Loan Agreement. On and after the date on
which each party hereto shall have signed and delivered to the Agent six
original counterpart signatures (which may be provided by facsimile followed
promptly by the executed original) to this Agreement, this Agreement shall be
effective among the parties hereto and, except to the extent set forth in the
introduction to this Agreement, shall supersede the Prior Loan Agreement upon
and as of the Closing Date.
11.19 Increase in Commitment.
(a) At any time prior to the Maturity Date, BASI may, at
Borrower's request, invite a New Bank to become a Bank under this Agreement and
to provide a commitment to lend hereunder in an amount not less than $7,500,000
(and to accordingly increase the Commitment by such amount); provided, however,
that in no event shall such actions cause the Commitment to increase above
$75,000,000.
(b) Obligor, Agent and the New Bank shall execute and deliver to
Agent (for the account of Agent, Obligor, and the New Bank) a Supplemental
Signature Page. Upon the execution and delivery of each such Supplemental
Signature Page, and despite
- 107 -
<PAGE> 114
any contrary provision of this Agreement (i) the New Bank shall become a Bank
hereunder, (ii) Borrower shall deliver a Note to the New Bank, in the principal
amount of such New Bank's commitment to lend hereunder, substantially in the
form of Exhibit N-1 hereto with appropriate insertions therein, (iii) the New
Bank shall simultaneously make Basic Rate Loans to Borrower in an amount equal
to its pro rata share of the then outstanding Loans, if any, the proceeds of
which shall be simultaneously paid to the Agent for distribution to the Banks to
the extent that any Bank's pro rata share of the then outstanding Loans is
decreased as a result of the new commitment of the New Bank to make Loans, (iv)
each Bank shall remit to the New Bank, as appropriate, the portion of any
unearned portion of any letter of credit fee previously paid by Borrower to such
Bank, if any, that is prospectively allocable to the portion of the risk
undertaken by the New Bank with respect to the relevant letter of credit
(prorated over the remaining period to which such fee relates), (v) Borrower
shall pay to BASI any fee that it has agreed to pay in connection with BASI's
arrangement of the incremental increase in the Commitment provided by the New
Bank, (vi) Borrower shall pay to the Agent for distribution to the New Bank, a
participation fee equal to one quarter of one percent of the amount of such New
Bank's commitment, and (vii) the New Bank shall thereafter be obligated to make
Loans to Borrower up to an including the amount of such Bank's pro rata share of
the increased Commitment on the terms and conditions contained herein.
(c) Upon any increase in the Commitment pursuant to this Section
11.19, the Agent shall amend Exhibit C-1 hereto to reflect the revised pro rata
shares of the Commitment held by the Banks, and shall deliver a copy of such
amended Exhibit C-1 to the Obligor and each Bank. Such amended Exhibit C-1 shall
supersede the previous Exhibit C-1 and shall be conclusive and binding absent
manifest error.
(d) Upon the execution and delivery of each Supplemental
Signature Page by Agent, Obligor, and the New Bank that is a party thereto, the
amount set forth in the first sentence of Section 2.3 of the Agreement amended,
automatically and without further action of the parties, to reflect the amount
of the Commitment set forth on the Supplemental Signature Page and on the
amended Exhibit C-1 delivered to the Banks pursuant to Section 11.19(c).
(e) Despite any other provision of this Section 11.19 to the
contrary, no increase in the Commitment will be permitted pursuant to the
foregoing unless all Loans then outstanding constitute Basic Rate Loans or, with
respect to any Loan that is not a Basic Rate Loan, the Interest Period for such
Loan will commence concurrently with the effective date of the increase in the
Commitment.
- 108 -
<PAGE> 115
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first set forth above.
CENTRAL INSTALLMENT CREDIT
CORPORATION, a California
corporation
By:_______________________________
Title:____________________________
BANNER'S CENTRAL ELECTRIC, INC.,
a California corporation
By:_______________________________
Title:____________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By:_______________________________
Title:____________________________
S-1
<PAGE> 116
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, in
its individual capacity as a Bank
By:_______________________________
Title:____________________________
SUMITOMO BANK OF CALIFORNIA,
as a Bank
By:_______________________________
Title:____________________________
SANWA BANK CALIFORNIA,,
as a Bank
By:_______________________________
Title:____________________________
S-2
<PAGE> 117
ASSIGNMENT AND ACCEPTANCE AGREEMENT
Dated _______________, 19__
Reference is made to that certain Third Amended and Restated Loan
Agreement dated as of June 24, 1996 (as it may be amended, supplemented,
restated or otherwise modified from time to time, the "Loan Agreement";
capitalized terms defined therein and not otherwise defined herein being used
herein as therein defined) by and among CENTRAL INSTALLMENT CREDIT CORPORATION,
a California corporation ("Borrower"), BANNER'S CENTRAL ELECTRIC, INC., a
California corporation ("BCE," together with Borrower, the "Obligors"), the
Banks party thereto and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
("BofA") as agent for Banks ("Agent"), pursuant to which ___________________
("Assignor") has committed to make loans (the "Loans") to Borrower and to
participate in letters of credit issued for the account of Borrower.
Assignor and ______________________ ("Assignee") agree as follows:
1. Assignor hereby sells and assigns to Assignee, and Assignee
hereby purchases and assumes from Assignor, that interest in and to [all/a
portion] of Assignor's rights and obligations under the Loan Agreement as of the
date hereof which represents the percentage interest specified in Section 1 of
Schedule 1 hereto of all outstanding rights and obligations under the Loan
Agreement (the "Assigned Interest"), including, without limitation, the
percentage interest specified in Section 1 of Schedule 1 hereto of Assignor's
share of the Commitment and the Loans owing to Assignor. After giving effect to
such sale and assignment, Assignee's share of the Commitment, the amount of the
Loans owing to Assignee, and Assignee's participation interest in any letters of
credit will be as set forth in Section 2 of Schedule 1 hereto.
2. The sale and assignment contemplated hereby shall become
effective as of the date (the "Effective Date") upon which (i) this Assignment
and Acceptance Agreement has been executed by Assignor and Assignee, (ii)
Assignee has paid to Assignor, in same day funds, at such address and account as
Assignor shall advise Assignee, $__________, and (iii) the applicable conditions
contained in Section 11.8 of the Loan Agreement have been satisfied. The
Effective Date is set forth in Section 3 of Schedule 1 hereto. From and after
the Effective Date, Assignor agrees that Assignee shall be entitled to all
rights, powers and privileges of Assignor under the Loan Documents (subject to
any limitations therein contained) to the extent of the Assigned Interest,
including without limitation (a) the right to receive all payments in respect of
the Assigned Interest for the period from and after the Effective Date, whether
on account of principal, interest, fees, indemnities in respect of claims
arising after the Effective Date, increased costs, additional amounts or
otherwise; (b) the right to vote and to instruct Agent under the Loan Agreement
according to its pro rata share based on the Assigned Interest; (c) the right to
set-off and to appropriate and apply deposits of Borrower as set forth in the
Loan Agreement (subject to any limitations therein setforth); and (d) the right
to receive notices, requests, demands and other communications. Assignor agrees
that it will promptly remit to Assignee any amount received by
-1-
Exhibit A-1
<PAGE> 118
it in respect of the Assigned Interest (whether from the Obligors, Agent or
otherwise) in the same funds in which such amount is received by Assignor.
3. Assignor (1) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) other than as provided
herein, makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with the Loan Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Loan Agreement or any
other instrument or document furnished pursuant thereto; and (iii) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Obligors or the performance or observance by the
Obligors of any of their obligations under the Loan Agreement or any other
instrument or document furnished pursuant thereto. Except as specified in this
Section 3, the assignment of the Assigned Interest contemplated hereby shall be
without recourse to Assignor.
4. Assignee (i) confirms that it has received a copy of the Loan
Agreement, together with copies of the financial statements referred to in the
subsections 4.8(a) and (b) thereof and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into this Assignment and Acceptance and purchase the Assigned Interest; (ii)
agrees that it will, independently and without reliance upon Assignor, Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Loan Documents; (iii) represents and warrants that
it is an Eligible Assignee as required by Section 11.8(b) of the Loan Agreement;
(iv) appoints and authorizes Agent to take such action as Agent on its behalf
and to exercise such powers under the Loan Agreement as are delegated to Agent
by the terms thereof, and (v) agrees that it will perform in accordance with
their terms all of the obligations which by the terms of the Loan Documents are
required to be performed by it as a Bank.
5. This Assignment may be executed in any number of counterparts
and by different parties in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute but one and the same instrument.
6. THIS ASSIGNMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written, such execution being made on Schedule 1 hereto.
-2-
Exhibit A-1
<PAGE> 119
SCHEDULE 1
to
Assignment and Acceptance Agreement
Dated ____________, 19__
<TABLE>
<S> <C>
Section 1.
Percentage Interest of Assignee
in all outstanding rights and obligations under
the Loan Agreement %
--------
Percentage Interest of
Assignor's share of the Commitment and Loans owing to Assignor
under the Loan Agreement being assigned to Assignee hereby: %
--------
Section 2.
Assignee's Share of the Commitment: $
--------
Aggregate Outstanding
Principal Amount of Loans owing to Assignee: $
--------
Aggregate Participation in Outstanding Letters
of Credit of Assignee: $
--------
Section 3.
Effective Date: , 19
------ --
</TABLE>
Schedule 1-1
<PAGE> 120
[NAME OF ASSIGNOR]
By:
---------------
Title:
[NAME OF ASSIGNEE]
By:
---------------
Title:
CONSENTED TO AND ACKNOWLEDGED THIS
DAY OF , 19
- --------------- -------- --
CENTRAL INSTALLMENT CREDIT CORPORATION
By:
----------------------------
Title:
Schedule 1-2
<PAGE> 121
CONSENTED TO AND ACKNOWLEDGED THIS
DAY OF , 19
- --------------- -------- --
BANNER'S CENTRAL ELECTRIC, INC.
By:
----------------------------
Title:
CONSENTED TO AND ACKNOWLEDGED THIS
DAY OF , 19
- --------------- -------- --
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Agent under the Loan
Agreement
By:
----------------------------
Title:
Schedule 1-3
<PAGE> 122
EXHIBIT B-1
BORROWING BASE CERTIFICATE
Bank of America NT&SA
Agency Management Services #5596
1455 Market Street, 12th Floor
San Francisco, California 94103
The undersigned, the [chief financial officer/controller] of CENTRAL
INSTALLMENT CREDIT CORPORATION, a California corporation ("Borrower"), pursuant
to Article III and/or Section 5.2(e) of that certain Third Amended and Restated
Loan Agreement, dated as of June 24, 1996 (as amended, the "Loan Agreement"),
entered into among Borrower, Banner's Central Electric, Inc., a California
corporation, the financial institutions which are signatories thereto ("Banks")
and Bank of America National Trust and Savings Association, as agent ("Agent")
for Banks thereunder, hereby certifies to Agent that the following items,
calculated in accordance with the terms and definitions set forth in the Loan
Agreement for such items are true and correct, and that Borrower is in
compliance with and, after giving effect to any currently requested Loans, will
be in compliance with the terms, conditions, and provisions of the Loan
Agreement:
Effective Date of Calculation: ____________________________________________.
<TABLE>
<S> <C>
1. total amount owing on Eligible Contracts to Obligor $________________
2. total unearned interest or finance
charge owing on Eligible Contracts to Obligor $________________
3. total amount owing for commercial
services and warranty agreements on
Eligible Contracts to Obligor $________________
4. total amount of unearned insurance
premiums on Eligible Contracts to Obligor $________________
5. total amount owing under each
Eligible Contract in which any payment
is more than sixty (60) days past due
(without duplication of items 2, 3 and 4) to Obligor $________________
</TABLE>
Exhibit B-1
- 1 -
<PAGE> 123
<TABLE>
<S> <C>
6. Net Unpaid Balances of Eligible
Contracts (item 1, minus item 2,
minus item 3, minus item 4, minus
item 5) to Obligor $________________
7. Item 6 minus Contracts Reserve $_______________
8. Item 7 multiplied by the Applicable Percentage $_______________
9. Fifty percent (50%) of Eligible Inventory(1) $_______________
10. The lesser of (a) item 8 and (b)
Four Million Dollars ($4,000,000) $_______________
11. Borrowing Base (item 7 plus item 9) $_______________
12. The lesser of (a) item 11 or (b)
Sixty Million Dollars ($60,000,000) $_______________
13. Currently outstanding Loans:
Revolving Loans
(a) Basic Rate Loans $_______________
(b) Eurodollar Rate Loans $_______________
(c) Total Revolving Loans
(item 13(a) plus item 13(b)) $_______________
</TABLE>
- -----------
(1)"Eligible Inventory" shall mean, on the date any determination
thereof is to be made, the value (determined at the lower of cost (determined on
either a first-in, first-out basis or an average cost basis) or fair market
value in accordance with GAAP) of Inventory consisting of finished goods owned
by and in the control of Obligor or Central Ram and located in the United States
of America except the following: (a) Inventory which Agent determines, in the
exercise of reasonable discretion, to be unacceptable for borrowing purposes due
to age, quality, type, category, or quantity; (b) Inventory with respect to
which Agent does not have a valid, first priority and fully perfected security
interest; and (c) Inventory with respect to which there exists any Lien in favor
of any Person other than Agent. For purposes of the foregoing clause (a), Agent
shall under no circumstances be deemed to have unreasonably exercised its
discretion if Agent acts in accordance with its customary practices and
procedures.
Exhibit B-1
- 2 -
<PAGE> 124
<TABLE>
<S> <C>
Term Loans
(d) Basic Rate Loans $_______________
(e) Eurodollar Rate Loans $_______________
(f) Total Term Loans
(item 13(d) plus item 13(e)) $_______________
Total Loans (item 13(c) plus item 13(f) $_______________
14. Letter of Credit Usage $_______________
15. Hedge Reserve (if any) $_______________
16. Availability (item 12, minus item 13(f),
minus item 14, minus item 15) $_______________
</TABLE>
Any and all initially capitalized terms used herein shall have the
meaning ascribed thereto in the Loan Agreement, unless specifically defined
herein.
The undersigned hereby certifies that all of the foregoing is true and
correct as of the effective date of the calculations set forth above and that
such calculations have been made in accordance with the requirements of the Loan
Agreement.
CENTRAL INSTALLMENT CREDIT
CORPORATION, a California corporation
By:__________________________________
Title:_______________________________
Exhibit B-1
- 3 -
<PAGE> 125
PRO RATA SHARE OF COMMITMENT OF EACH BANK
<TABLE>
<CAPTION>
Bank Dollar Share of Percentage Share
Commitment of Commitment
---------- -------------
<S> <C> <C>
Bank of America National
Trust and Savings
Association $35,000,000 58.333333333%
Sumitomo Bank of
California $15,000,000 25.000000000%
Sanwa Bank
California $10,000,000 16.666666667%
----------- -------------
Total $60,000,000 100%
</TABLE>
Exhibit C-1
<PAGE> 126
PROMISSORY NOTE
ORIGINAL FACE AMOUNT: $________________
MAKER: CENTRAL INSTALLMENT CREDIT CORPORATION, a California corporation
DATED AS OF: __________________________
1. PROMISE TO REPAY. FOR VALUE RECEIVED, CENTRAL INSTALLMENT
CREDIT CORPORATION, a California corporation ("Maker"), promises to pay to
____________________________________________ ("Lender"), or order, the principal
sum of _______________ Dollars ($____________) or such lesser amount as shall
equal the outstanding amount of the Loans made by Lender to Maker pursuant to
Section 2.1 of that certain Third Amended and Restated Loan Agreement, dated as
of June 24, 1996 (the "Loan Agreement"), entered into between Maker, Banner's
Central Electric, Inc., a California corporation, each of the financial
institutions which are now or hereafter parties thereto ("Banks"), and Bank of
America National Trust and Savings Association, as agent ("Agent") for Banks
thereunder.
2. DEFINED TERMS. Any and all initially capitalized terms used
herein shall have the meaning ascribed thereto in the Loan Agreement, unless
specifically defined herein. The term "or" as used in this Note has, except
where otherwise indicated, the inclusive meaning represented by the phrase
"and/or". This Promissory Note (this "Note") is one of the promissory notes
defined in the Loan Agreement as the "Notes" and is subject to, and entitled to
the benefits of, the terms and provisions of the Loan Agreement.
3. PAYMENTS OF PRINCIPAL AND INTEREST.
(a) Maker hereby promises to make payments of principal
and interest, with respect to the Loans evidenced hereby at the rates and times,
and in the amounts, and in all other respects in the manner as provided in the
Loan Agreement.
(b) As more fully set forth in the Loan Agreement, Maker
shall not be obligated to pay, and the holder of this Note shall not be
obligated to charge, collect, receive, reserve, or take interest (it being
understood that interest shall be calculated as the aggregate of all charges
which constitute interest under applicable law that are contracted for, charged,
reserved, received, or paid) in excess of the maximum non-usurious interest
rate, as in effect from time to time, which may be charged, contracted for,
reserved, received, or collected by Lender in connection with the Loan
Agreement, this Note, the Ancillary Documents, or any other documents executed
in connection herewith or therewith.
Exhibit N-1
<PAGE> 127
4. PREPAYMENTS. Maker may prepay the principal balance
due under this Note, in whole or in part, only in accordance with the provisions
of the Loan Agreement.
5. APPLICATION OF PAYMENTS. All payments (including
prepayments) made hereunder shall be applied as set forth in the Loan Agreement.
6. TIME AND PLACE OF PAYMENTS. All principal and
interest due hereunder is payable in immediately available Dollars at Agent's
San Francisco office located at Agency Management Services #5596, 1455 Market
Street, San Francisco, California 94103, (or at such other office as may be
designated from time to time by Agent), not later than 10:00 a.m., California
time, on the day of payment.
7. WAIVERS. Maker, for itself and its legal
representatives, successors, and assigns, expressly waives presentment, demand,
protest, notice (except as required by the Loan Agreement), and all other
requirements of any kind, in connection with the enforcement or collection of
this Note.
8. ACCELERATION AND WAIVER. IT IS EXPRESSLY AGREED THAT,
UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, THE UNPAID PRINCIPAL BALANCE OF AND
ANY ACCRUED AND UNPAID INTEREST UNDER THIS NOTE MAY BE DECLARED TO BE, OR SHALL
IMMEDIATELY BECOME, DUE AND PAYABLE PURSUANT TO THE TERMS OF THE LOAN AGREEMENT,
WITHOUT PRESENTMENT, DEMAND, PROTEST, NOTICE (EXCEPT AS REQUIRED BY THE LOAN
AGREEMENT), OR OTHER REQUIREMENTS OF ANY KIND, ALL OF WHICH ARE HEREBY EXPRESSLY
WAIVED BY MAKER.
9. SECURITY. THIS NOTE IS SECURED BY, AMONG OTHER
THINGS, THE LIENS GRANTED TO COLLATERAL AGENT FOR THE BENEFIT OF BANKS PURSUANT
TO THE TERMS AND CONDITIONS OF THE ANCILLARY DOCUMENTS EXECUTED BY MAKER.
10. ATTORNEYS' FEES. In the event it should become
necessary to employ counsel to collect or enforce this Note, Maker agrees to pay
the reasonable attorneys' fees and costs of the holder hereof, irrespective of
whether suit is brought, to the extent and as provided in the Loan Agreement.
11. AMENDMENTS. This Note may not be changed, modified,
amended, or terminated except by a writing duly executed by Maker and the holder
hereof.
12. HEADINGS. Section headings used in this Note are
solely for convenience of reference, shall not constitute a part of this Note
for any other purpose, and shall not affect the construction of this Note.
Exhibit N-1
<PAGE> 128
13. GOVERNING LAW. EXCEPT AS OTHERWISE PROVIDED IN THE
LOAN AGREEMENT: (A) THIS NOTE SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF
CALIFORNIA; AND (B) THE VALIDITY OF THIS NOTE AND THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO
SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUCTED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CALIFORNIA.
14. ARBITRATION. All controversies or claims arising in
connection with this Note shall be resolved by arbitration in accordance with
the terms set forth in the Loan Agreement.
CENTRAL INSTALLMENT CREDIT
CORPORATION, a California corporation
By___________________________________
Title:_______________________________
-3-
Exhibit N-1
<PAGE> 129
NOTICE OF BORROWING
TO: Bank of America NT & SA
Agency Management Services #5596
1455 Market Street, 12th Floor
San Francisco, California 94103
Pursuant to that certain Third Amended and Restated Loan Agreement,
dated as of June 24, 1996 (the "Loan Agreement"), entered into among CENTRAL
INSTALLMENT CREDIT CORPORATION, a California corporation ("Borrower"), BANNER'S
CENTRAL ELECTRIC, INC., a California corporation ("BCE"), the financial
institutions which are now or hereafter parties thereto ("Banks"), and BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent ("Agent") for Banks
thereunder, this Notice of Borrowing, delivered in accordance with Section 2.8
of the Loan Agreement, represents Borrower's request for an extension of credit
pursuant to the Loan Agreement as follows:
<TABLE>
<C> <S>
$________ A Basic Rate Borrowing under the Revolving Credit Facility;
$________ A Eurodollar Rate Borrowing under the Revolving Credit
Facility with an Interest Period of __________ month[s] and
expiring on ______________, _______;
$________ The issuance of a Letter of Credit on the terms and
conditions set forth on Schedule 1 attached hereto, pursuant
to Sections 2.1(e) and 2.2 of the Loan Agreement.
$________ TOTAL
</TABLE>
The undersigned Responsible Officer of Borrower certifies
that:
(a) the representations and warranties of Obligor and
Central Ram contained in the Loan Agreement and the Ancillary Documents, to the
extent that Obligor or Central Ram is a party thereto, are true, correct, and
complete in all material respects at and as of the date hereof, as though made
on the date hereof (except to the extent such representations and warranties
expressly relate solely to an earlier date);
(b) both before and after giving effect to the proposed
Loan, Obligor is in compliance, in all material respects, with all of the
requirements of each of the covenants contained in the Loan Agreement; and
Exhibit N-2
-1-
<PAGE> 130
(c) no Event of Default or Unmatured Event of Default has
occurred and is continuing on the date of the proposed Loan nor shall an Event
of Default or Unmatured Event of Default result from the making of the proposed
Loan.
Any and all initially capitalized terms used herein shall have
the meaning ascribed thereto in the Loan Agreement, unless specifically defined
herein.
Dated: __________, 19__
CENTRAL INSTALLMENT CREDIT
CORPORATION,
a California corporation
By:______________________________
Title:___________________________
Exhibit N-2
-2-
<PAGE> 131
SCHEDULE 1
TERMS AND CONDITIONS OF LETTERS OF CREDIT
Stated Amount:
Account Party:
Beneficiary:
Expiry Date:
Conditions for Drawing:
<PAGE> 132
NOTICE OF CONVERSION/CONTINUATION
TO: Bank of America NT & SA
Agency Management Services #5596
1455 Market Street, 12th Floor
San Francisco, California 94103
Pursuant to that certain Third Amended and Restated Loan Agreement,
dated as of June 24, 1996 (the "Loan Agreement"), among CENTRAL INSTALLMENT
CREDIT CORPORATION, a California corporation ("Borrower"), BANNER'S CENTRAL
ELECTRIC, INC., a California corporation ("BCE"), each of the financial
institutions ("Banks") which are now or hereafter parties thereto, and BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent ("Agent") for Banks
thereunder, this Notice of Conversion/Continuation represents Borrower's request
to:
(a) Convert $_________________________ in principal amount of
Basic Rate Borrowings on ____________, 19__, to a Eurodollar Rate Borrowing,
with an Interest Period of ______ months and expiring on ___________, 19__;
(b) Convert $_________________________ in principal amount of
Eurodollar Rate Borrowings on _______________, 19__, to Basic Rate Borrowings;
(c) Continue as Eurodollar Rate Borrowings $___________________ in
principal amount of presently outstanding Eurodollar Rate Borrowings, commencing
on ___________, 19__, with a new Interest Period of ____ months and expiring on
_______________, 19__.
The undersigned Responsible Officer of Borrower certifies
that:
(a) the representations and warranties of Borrower
contained in the Loan Agreement and the Ancillary Documents, to the extent that
Borrower is a party thereto, are true and correct in all material respects at
and as of the date hereof, as though made on the date hereof (except to the
extent such representations and warranties expressly relate solely to an earlier
date);
(b) both before and after giving effect to the proposed
Loan, Borrower is in compliance, in all material respects, with all of the
requirements of each of the covenants contained in the Loan Agreement; and
-1-
Exhibit N-3
<PAGE> 133
(c) no Event of Default or Unmatured Event of Default has
occurred and is continuing on the date of the proposed loan nor shall an Event
of Default or Unmatured Event of Default result from the making of the proposed
Loan.
Any and all initially capitalized terms used herein shall have the
meaning ascribed thereto in the Loan Agreement, unless specifically defined
herein.
Dated: _________, 19__ CENTRAL INSTALLMENT CREDIT
CORPORATION, a California corporation
By:__________________________________
Title:_______________________________
-2-
Exhibit N-3
<PAGE> 134
FORM OF OFFICER'S COMPLIANCE CERTIFICATE
Certificate for the Period Ending
________, 199__
Bank of America NT&SA
Agency Management Services #5596
1455 Market Street, 12th Floor
San Francisco, California 94103
Re: Officer's Compliance Certificate
Gentlemen:
This Certificate is given in accordance with subsection 5.2(d) of that
certain Third Amended and Restated Loan Agreement, dated as of June 24, 1996 (as
amended, restated, supplemented or otherwise modified from time to time, the
"Loan Agreement"), entered into among CENTRAL INSTALLMENT CREDIT CORPORATION, a
California corporation ("Borrower"), BANNER'S CENTRAL ELECTRIC, INC., a
California corporation ("BCE"), the financial institutions which are signatories
thereto (collectively, "Banks"), and Bank of America National Trust and Savings
Association, as agent ("Agent") for Banks thereunder. Any and all initially
capitalized terms used herein shall have the meanings ascribed thereto in the
Loan Agreement, unless specifically defined herein.
I hereby certify that:
1. We are the (chief financial officers/controllers) of Borrower
and BCE;
2. The enclosed consolidated and consolidating financial
statements, balance sheets, profit and loss statements and
cash flow statements of Borrower and BCE fairly present the
financial condition of Borrower and BCE and their subsidiaries
as of the dates indicated, and we have reviewed such
statements in preparing this certificate;
3. We have reviewed the terms of the Loan Agreement and the Notes
and the transactions and the consolidated financial condition
of Borrower during the accounting period covered by the
enclosed financial statements;
4. To the best of our knowledge and belief no event or condition
exists which constitutes an Unmatured Event of Default or an
Event of Default as of the date of this Officer's Compliance
Certificate (this "Certificate") except as
Exhibit O-1
- 1 -
<PAGE> 135
set forth below, and Borrower and BCE are in compliance with
all of the terms and provisions of the Loan Agreement except
as set forth below.
Described below (or in a separate attachment hereto) are the
exceptions, if any, to paragraph (4), listing, in detail, the
nature of the condition or event, the period during which it
has existed and the action which Borrower or BCE has taken, is
taking or proposes to take with respect to each such condition
or event:
---------------------------
---------------------------
---------------------------
5. As of the date of this Certificate, neither Borrower nor BCE
is in default under any negative covenant set forth in ARTICLE
VI of the Loan Agreement.
IF OTHER THAN FISCAL QUARTER, COMPLETE ONLY PARAGRAPHS 7, 8, 9, 10, 12
AND 13 BELOW; FOR THE END OF EACH FISCAL QUARTER, COMPLETE ALL
PARAGRAPHS BELOW.
6. The ratio of Total Debt to Tangible Net Worth and the minimum
Tangible Net Worth for the period covered by this Certificate
complies with the requirements of Section 6.6(a) and Section
6.6(h) of the Loan Agreement and may be calculated as follows:
<TABLE>
<S> <C>
(a) Total Debt: ________
(b) Tangible Net Worth: ________
(i) the aggregate of total
stockholder's equity: ________
(ii) the aggregate of any
treasury stock, any
intangible assets, and any
obligations due from
stockholders, employees, or
affiliates: ________
(iii) Permanent Subordinated Debt: ________
Total (item (b) (i) minus item (b) (2)
</TABLE>
Exhibit O-1
- 2 -
<PAGE> 136
<TABLE>
<S> <C>
plus item (b) (iii)): _________
Total (item (a) divided by item (b)): ____:1.00
The maximum ratio of Total Debt to
Tangible Net Worth permitted to be
maintained by Obligor pursuant to
Section 6.6(a) of the Loan Agreement, for
the period covered by this certificate is: 3.50:1.00
The minimum Tangible Net Worth permitted
to be maintained by Obligor pursuant to
Section 6.6(h) of the Loan Agreement, for
the period covered by this certificate is:
(a) Tangible Net Worth Threshold Amount $15,000,000
(b) 50% of net income for fiscal
quarter ended:
December 31, 1993 ___________
March 31, 1994 ___________
June 30, 1994 ___________
September 30, 1994 ___________
December 31, 1994 ___________
March 31, 1995 ___________
June 30, 1995 ___________
__________________ ___________
__________________ ___________
__________________ ___________
__________________ ___________
(c) Total of (a) and (b) $__________
7. The Past Due Receivable Ratio for the period
covered by this Certificate complies with the
requirements of Section 6.6(b) of the Loan
Agreement and may be calculated as follows:
(a) the total amount owing to Obligor and its
subsidiaries under each Eligible Contract in
which any payment is more than sixty (60) days
</TABLE>
Exhibit O-1
- 3 -
<PAGE> 137
<TABLE>
<S> <C>
past due:
Obligor $__________
Central Ram $__________
Total $__________
(b) the total amount owing to Obligor and its
subsidiaries under all Eligible Contracts:
Obligor $__________
Central Ram $__________
Total $__________
Total (item (a) divided by item (b)): ______:1.00
The maximum Past Due Receivable Ratio permitted to be maintained by Obligor and
its subsidiaries pursuant to Section 6.6(b) of the Loan Agreement, for the
period covered by this Certificate is:
0.0400:1.00
8. The aggregate amount of loans and cash advances made by Obligor and its
subsidiaries to Sister Companies, excluding BCE Playground, Inc., and
outstanding on the date of this Certificate is in compliance with the
limitations set forth in Section 6.6(d) of the Loan Agreement and is:
$__________
The maximum aggregate amount of loans and cash advances made by Obligor
and its subsidiaries to its Sister Companies, excluding BCE Playground,
Inc., permitted to be outstanding at any one time is:
$ 500,000
The aggregate amount of loans and cash advances made by Obligor and its
subsidiaries to BCE Playground, Inc. and outstanding on the date of
this Certificate is in compliance with the limitations set forth in
Section 6.6(d) of the Loan Agreement and is:
$__________
</TABLE>
Exhibit O-1
- 4 -
<PAGE> 138
<TABLE>
<S> <C>
The maximum aggregate amount of loans and cash advances made by Obligor
and its subsidiaries to BCE Playground, Inc. and permitted to be
outstanding at any one time is:
$275,000
9. The aggregate amount of Capital Expenditures expended by Obligor and
its subsidiaries during the period covered by this Certificate is in
compliance with the limitations set forth in Section 6.6(d) of the Loan
Agreement and to the date hereof is:
$_______
The maximum permitted Capital Expenditures for Obligor and its
subsidiaries pursuant to Section 6.6(d) of the Loan Agreement, for the
period covered by this Certificate is:
$750,000
10. The aggregate amount of obligations incurred or assumed by Obligor and
its subsidiaries with respect to the Operating Leases during the period
covered by this Certificate is in compliance with the limitations set
forth in Section 6.6(e) of the Loan Agreement and to the date hereof is
$_______
The maximum aggregate amount of obligations which Obligor and its
subsidiaries are permitted to incur or assume with respect to Operating
Leases pursuant to Section 6.6(e) of the Loan Agreement, for the period
covered by this Certificate is:
$_______
11. The Cash Flow to Interest Coverage Ratio for the two consecutive fiscal
quarters ending as of the date of this Certificate complies with the
requirements of Section 6.6(f) of the Loan Agreement and may be
calculated as follows:
(a) Cash Flow:
(i) net income (or loss) after
taxes: $_______
</TABLE>
Exhibit O-1
- 5 -
<PAGE> 139
<TABLE>
<S> <C>
(ii) depreciation and
amortization expenses: $________
(iii) total interest expense: $________
(iv) other non-cash items
reducing net income
(excluding extraordinary
items): $________
(v) cash capital expenditures
to the extent not funded by
new cash equity
contributions to Obligor,
Permanent Subordinated Debt,
or the proceeds of
Permitted Indebtedness
incurred from sources other
than Loans by the Banks: $________
Total (item (a) (i) plus
item (a) (ii) plus item
(a) (iii) plus item (a) (iv)
minus item (a) (v): $________
(b) cash interest expense: $________
Total (item 11(a) divided by item
11(b)): ____:1.00
The minimum Cash Flow to Interest
Coverage Ratio required to be
maintained by Obligor and its
subsidiaries pursuant to
Section 6.6(f) of the Loan Agreement,
for the two consecutive fiscal
quarters ending as of the date of
this Certificate is: 2.50:1.00
12. The Doubtful Accounts Ratio for the period
covered by this Certificate complies with the
requirements of Section 6.6(g) of the Loan
Agreement as follows:
</TABLE>
Exhibit O-1
- 6 -
<PAGE> 140
<TABLE>
<S> <C>
(a) The reserve for bad debt expense
maintained by Obligor and its
subsidiaries in accordance with
GAAP as of the date hereof is: $_______
(b) Net Contracts then outstanding
(i) total amount owed under
Contracts then outstanding:
to Obligor $_______
to Central Ram $_______
Total $_______
(ii) all unearned interest or
finance charges thereon:
to Obligor $_______
to Central Ram $_______
Total $_______
Total (item (b) (i) minus item
(b) (ii)) ________
Total (item (a) divided by
item (b)) ________
The maximum Doubtful Accounts
Ratio permitted to be maintained
by Obligor and its subsidiaries
pursuant to Section 6.6(g) of
the Loan Agreement, for the
period covered by this
Certificate is: .03:1.00
13. The Net Charge Offs to Net Contracts Ratio for the
period covered by this Certificate complies with the
requirements of Section 6.6(i) of the Loan
Agreement and may be calculated as follows:
(a)
</TABLE>
Exhibit O-1
- 7 -
<PAGE> 141
<TABLE>
<S> <C>
(i) gross charge offs for the
twelve (12) month period
ending as of the date hereof:
Obligor $_______
Central Ram $_______
Total $_______
(ii) deferred finance charges on
gross charge offs for the
twelve month period ending
as of the date hereof:
Obligor $_______
Central Ram $_______
Total $_______
(iii) cash recoveries for the
twelve month period ending
on the date hereof:
Obligor $_______
Central Ram $_______
Total $_______
Total (item (a) (i) minus item (a) (ii)
minus item (a) (iii)):
Obligor $_______
Central Ram $_______
Total $_______
(b) Average of Net Contracts for the
twelve month period ending on
the date hereof:
Obligor $_______
Central Ram $_______
Total $_______
</TABLE>
Exhibit O-1
- 8 -
<PAGE> 142
<TABLE>
<S> <C>
Total (item (a) divided by item (b)):
Obligor ______:1.00
Central Ram ______:1.00
Total ______:1.00
The maximum Net Charge Offs to Net
Contracts Ratio permitted to be
maintained by Obligor and its
subsidiaries pursuant to
Section 6.6(i) of the Loan Agreement,
for the period covered by this
Certificate is: 0.0750:1.00
</TABLE>
The foregoing certifications are made and delivered this _______ day of
____________, 199_.
CENTRAL INSTALLMENT CREDIT
CORPORATION,
a California corporation
By:_____________________________
Title:__________________________
BANNER'S CENTRAL ELECTRIC, INC.,
a California corporation
By:_____________________________
Title:__________________________
Exhibit O-1
- 9 -
<PAGE> 143
SUPPLEMENTAL SIGNATURE PAGE
Re: Third Amended and Restated Loan Agreement (the "Loan
Agreement") dated as of June 24, 1996, by and among Central
Installment Credit Corporation, Banner's Central Electric,
Inc., the Banks named therein and Bank of America National
Trust and Savings Association, as Agent. Capitalized terms
used below and not otherwise defined shall have the meanings
given such terms in the Loan Agreement.
The undersigned agrees to become a Bank under the Loan Agreement as if
originally named therein, with a percentage of the Commitment equal to
_______________ % of the aggregate Commitment, which represents $_________ of
the Commitment, effective as of _____________, 19__ ("Effective Date"). The
total amount of the Commitment is ______________ Dollars ($_____). The
undersigned further agrees to be bound by the terms and conditions of the
Agreement.
The undersigned (i) confirms that it has received a copy of the Loan
Agreement, together with copies of such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to become a
Bank under the Loan Agreement; (ii) agrees that it will, independently and
without reliance upon Agent, BASI, or any other Bank, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Loan
Documents; (iii) represents and warrants that it meets all of the requirements
set forth in the definition of an "Eligible Assignee" under Section 11.8(b) of
the Loan Agreement; (iv) appoints and authorizes Agent to take action as Agent
on its behalf and to exercise such powers under the Loan Agreement as are
delegated to Agent by the terms thereof; and (v) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Loan Documents are required to be performed by it as a Bank. Finally, the
undersigned agrees that, as of the Effective Date, Exhibit C-1 to the Agreement
is amended in its entirety to read as set forth on the attached Exhibit C-1,
which is incorporated by this reference.
Exhibit S-1
<PAGE> 144
[Name of New Bank]
By:_______________
Title_____________
Exhibit S-1
<PAGE> 145
CERTIFICATE REGARDING CALIFORNIA
COMMERCIAL CODE SECTION 9102(5)-(7)
The undersigned deliver this certificate to BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION, as agent ("Agent") for the financial institutions
which are signatories ("Banks") to that certain Third Amended and Restated Loan
Agreement ("Loan Agreement"), dated as of June 24, 1996, entered into among
CENTRAL INSTALLMENT CREDIT CORPORATION, a California corporation ("Borrower"),
BANNER'S CENTRAL ELECTRIC, INC., a California corporation ("BCE"), Banks and
Agent.
Reference is made to the credit transactions contemplated by the Loan
Agreement, the related Notes, the BCE Guaranty and the other Ancillary Documents
(as defined in the Loan Agreement). The undersigned has reviewed all of the
provisions of the foregoing documents insofar as they may impose any
restrictions upon Borrower or BCE with respect to the use of loan funds advanced
thereunder. The undersigned hereby certify to Agent and Banks, and agree that,
in connection with the indebtedness to be incurred pursuant to the Loan
Agreement, the Notes, the BCE Guaranty and the other Ancillary Documents
referred to above, Agent and Banks have not made any restrictions as to use of
funds thereunder that are commercially unreasonable. The undersigned further
agree that any restrictions as to use of funds thereunder were made by Agent and
Banks in good faith.
The undersigned stipulate that this certificate is an "Ancillary
Document" within the meaning of the Loan Agreement.
Dated as of June 24, 1996
CENTRAL INSTALLMENT CREDIT
CORPORATION, a California corporation
By:__________________________________
Title:_______________________________
BANNER'S CENTRAL ELECTRIC, INC., a
California corporation
By:__________________________________
Title:_______________________________
Exhibit 3.1(w)
<PAGE> 146
NOTICES
PARTIES NOTICE INFORMATION
Borrower: CENTRAL INSTALLMENT CREDIT CORPORATION
5480 East Ferguson Drive
Commerce, California 90022
Attention: Gary Cypres
Telephone: (213) 748-9901
Telefacsimile: (213) 747-5927
with a copy to the attention of Russell J. Grisanti (at the
same address as above, and with the same telephone and
telefacsimile numbers as above)
And with a WEST COAST PRIVATE EQUITY PARTNERS, L.P.
copy of 10780 Santa Monica Blvd., Suite 410
notices to Los Angeles, California
Borrower to: Attention: Gary M. Cypres
Telephone: (310) 441-4800
Telefacsimile: (310) 442-4814
BCE: BANNER'S CENTRAL ELECTRIC, INC.
5480 East Ferguson Drive
Commerce, California 90022
Attention: Gary M. Cypres
Telephone: (213) 720-8000
Telefacsimile: (213) 720-8735
Agent: BANK OF AMERICA NT & SA
Agency Management Services #5596
1455 Market Street, 12th Floor
San Francisco, California 94103
Attention: Daniel G. Farthing, V.P.
Telephone: (415) 436-3431
Telefacsimile: (415) 436-2700
Exhibit 11.5
<PAGE> 147
Banks: BANK OF AMERICA, NT & SA
Los Angeles Commercial Banking No. 1459
525 South Flower Street, Mezzanine
Los Angeles, California 90071
Attention: Paul Sutherlen
Telephone: (213) 228-5970
Telefacsimile: (213) 228-2051
SUMITOMO BANK OF CALIFORNIA
611 West Sixth Street, Suite 3900
Los Angeles, California 90017
Attention: William G. Nelle, Jr. or Laura French,
Note Department
Telephone: (213) 362-5715 (Nelle) or
(213) 362-5714 (French)
Telefacsimile: (213) 622-1385 (Both)
SANWA BANK
601 South Figueroa Street
Los Angeles, California 90017
Attention: Joseph C. Arco
Telephone: (213) 896-7103
Telefacsimile: (213) 896-7090
Exhibit 11.5
<PAGE> 1
Exhibit 10.15
CENTRAL RAM, INC.
AMENDED AND RESTATED SECURITY AGREEMENT
This AMENDED AND RESTATED SECURITY AGREEMENT, dated as of June 24,
1996, is entered into between Debtor and Collateral Agent, with reference to the
facts that: (A) Debtor contemporaneously herewith is executing the Central Ram
Guaranty in favor of Agent on behalf of the Banks pursuant to which the Debtor
will guaranty the obligations of the Obligors under the Loan Agreement; and (B)
Debtor desires to grant to Collateral Agent a security interest in the
Collateral as security for the Secured Obligations. Reference is made to that
certain Security Agreement dated as of June 14, 1994, 1992, between Debtor and
Collateral Agent; which aforesaid Security Agreement is referred to hereinafter
as the "Prior Security Agreement." Effective as of the Closing Date, this
Agreement amends and restates in its entirety the Prior Security Agreement,
which Prior Security Agreement shall be superseded and replaced by this
Agreement as of the Closing Date.
NOW, THEREFORE, in consideration of the mutual promises,
covenants, representations, and warranties set forth herein and for other good
and valuable consideration, the parties hereto agree as follows:
1. Definitions and Construction. As used herein, the
following terms shall have the meanings respectively set forth after each:
"Account Debtor" shall have the meaning ascribed thereto in Section
9105 of the Code.
"Accounts" means all of Debtor's presently existing and hereafter
arising: (a) accounts (including all "accounts" as such term is defined
in Section 9106 of the Code); (b) chattel paper 1(including all
"chattel paper" as such term is defined in Section 9105(l)(b) of the
Code), including certificated securities (as such term is defined in
Section 8102 of the Code) and instruments (as such term is defined in
Section 9105(l)(i) of the Code) constituting part of "chattel paper" as
such term is defined in Section 9105(1)(b) of the Code; (c) contract
rights; and (d) credit insurance, guarantees, and letters of credit
with respect to which Debtor is the beneficiary, together with any
security for any of the foregoing.
"Agent" means Bank of America National Trust and Savings Association
and its successors, as agent for Banks under the Loan Agreement, and
any successor agent appointed pursuant to the provisions of the Loan
Agreement.
"Agreement" means this Security Agreement.
"Bankruptcy Code" means The Bankruptcy Reform Act of 1978 (11 U.S.C.
Sections 101-1330), as amended or supplemented from time to time, and
any successor statute, and all of the rules issued or promulgated in
connection therewith.
- 1 -
<PAGE> 2
"Banks" means all Persons which now or hereafter are signatories to the
Loan Agreement in such capacity.
"Books and Records" means all of Debtor's present and future books and
records, including accounting journals and ledgers, deposit account
statements, computer programs, disc or tape files, printouts, and other
computer-prepared information, which in each case summarizes,
evidences, provides information concerning, or is used in connection
with, all or any part of the Collateral.
"Central Ram Guaranty" means that certain Continuing Guaranty executed
by Debtor in favor of Agent for the benefit of the Banks dated the date
hereof.
"CFR" means the Code of Federal Regulations, as amended or supplemented
from time to time.
"Chief Executive Office" means the place or location where Debtor is
deemed located pursuant to the provisions of Section 9103(3)(d) of the
Code.
"Code" means the California Uniform Commercial Code, as amended or
supplemented from time to time.
"Collateral" means the Accounts, the Books and Records, the Documents,
the Equipment, the General Intangibles, the Inventory, the Money, the
Pledged Collateral, the Securities, and the Proceeds; provided,
however, that, notwithstanding anything to the contrary contained in
this Agreement, the Collateral hereunder does not include any
"infectious waste",, "restricted hazardous waste", or "hazardous waste"
as those terms are defined under one or more of 42 U.S.C Section
6903(5) and California Health & Safety Code Sections 25117, 25117.5,
and 25122.7, as any one or more of the foregoing sections may be from
time to time amended, or under any regulations thereunder.
"Collateral Agent" means Bank of America National Trust and Savings
Association and its successors, in its capacity as collateral agent for
Agent and Banks pursuant to the Intercreditor Agreement, and any
successor collateral agent appointed pursuant to the provisions of the
Intercreditor Agreement.
"Debtor" means Central Ram, Inc., a Delaware corporation.
"Default" means any Event of Default or any Unmatured Event of Default
or any default under the Central Ram Guaranty.
"Documents" means all present and future right, title and interest of
Debtor in and to any "Documents of title," as such term is defined in
Section 1201(15) of the Code.
"Equipment" means all of Debtor's presently existing or hereafter
acquired or created equipment (including all "equipment", as such term
is defined in Section 9109(2) of the Code)
- 2 -
<PAGE> 3
in all of its forms, wherever located, and all parts thereof and all
accessions thereto and documents therefor, including fixtures,
furnishings, furniture, heavy equipment, jibs, machinery, molds,
motors, pallets, tooling, tools, and trade fixtures, and all cars,
forklifts, rolling stock, tractors, trucks, and other vehicles, and any
and all spare and replacement parts and supplies used in connection
with the maintenance or operation of any one or more of the foregoing.
"General Intangibles" means all of Debtor's presently existing and
hereafter arising general intangibles (including all "general
intangibles," as such term is defined in Section 9106 of the Code),
including all: blueprints; catalogs; choses or things in action;
computer disks; computer programs; computer tapes; customer lists;
deposit accounts (including all "deposit accounts," as such term is
defined in Section 9105(l)(e) of the Code); drawings; goodwill;
literature; claims due or recoverable from pension funds; patents;
patent rights; purchase orders; reports; route lists; service marks;
service mark rights; software; tax refunds; tax refund claims; trade
names; trade name rights; trademarks; trademark rights; rights to
receive and interests in insurance settlement proceeds; rights under or
pursuant to interest rate protection, swap, hedge or cap agreements;
rights under or pursuant to subscription agreements or net worth
maintenance agreements; rights under licensing, distribution,
representation, agency, sales, and other contracts or agreements;
claims for damages to persons or Assets; interests in and rights to
receive distributions of Assets with respect to general partnerships,
limited partnerships, joint ventures, trusts, estates of deceased
persons (irrespective of whether in probate), and unincorporated
associations; rights to payment and other rights under any guaranty,
indemnity, or right of contribution or subrogation; rights with respect
to any approval, certification, license, or permit-issued by or under
the authority of any governmental entity, or any subdivision,
department, or agency thereof, including to the maximum extent
permitted by law, licenses issued to Debtor by any alcoholic beverage
licensing authority; rights with respect to or interests in any
minerals or the like (including oil or gas) before extraction and which
attach thereto as extracted; and rights in and to all security
agreements, leases, or other contracts securing or otherwise relating
to any of the foregoing or any Account or any Pledged Collateral.
"Intercreditor Agreement" means that certain Second Amended and
Restated Collateral Agency Intercreditor Agreement, dated as of June
24, 1996, entered into between Agent, Collateral Agent, and Banks as
amended.
"Inventory" means all of Debtor's presently existing or hereafter
acquired or created inventory (including all "inventory" as such term
is defined in Section 9109(4) of the Code) in all of its forms,
wherever located (whether in the possession of Debtor or a bailee or
other person for storage, transit, or otherwise), including: (a) all
"goods," as such term is defined in Section 9105(l)(h) of the Code,
manufactured or assembled or held for sale or lease or to be furnished
under any contract of service; (b) raw materials; (c) work in process;
(d) finished goods; (e) all merchandise or "goods" as such term is
defined in Section 9105(l)(h) of the Code, which are returned to or
repossessed by Debtor; (f) all materials used or consumed in Debtor's
business; and (g) all additions and accessions to any of the foregoing
and all replacements and products of any of the
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<PAGE> 4
foregoing together with all containers, packing, packaging, or shipping
materials related thereto.
"Loan Agreement" means that certain Third Amended and Restated Loan
Agreement, dated as of June 24, 1996, among the Obligors, Banks, and
Agent, as amended.
"Money" means all present and future right, title and interest of
Debtor in and to any "Money," as such term is defined in Section 9102
(24) of the Code.
"Obligors" means Central Installment Credit Corporation, a California
corporation, and Banner's Central Electric, Inc., a California
corporation, collectively.
"Pledged Collateral" means all presently existing and hereafter
acquired or created indebtedness held by Debtor, and all evidences of
such indebtedness, including all instruments (including all
"instruments" as such term is defined in Section 9105(i) of the Code),
cash, and other Assets from time to time received, receivable, or
otherwise distributed in respect of, in exchange for, or on account of
such indebtedness.
"Proceeds" means all proceeds (including proceeds of proceeds) of the
Collateral, including all: (a) rights, benefits, distributions,
premiums, profits, dividends, interest, cash, Accounts, Documents,
Equipment, General Intangibles, Inventory, Money, Pledged Collateral,
Securities, and other Assets from time to time received, receivable, or
otherwise distributed in respect of, or in exchange for, or as a
replacement of or a substitution for, any of the Collateral; (b)
"proceeds," as such term is defined in Section 9306 of the Code; (c)
proceeds of any insurance, indemnity, warranty, or guarantee (including
guarantees of delivery) payable from time to time with respect to any
of the Collateral; (d) payments (in any form whatsoever) made or due
and payable to Debtor from time to time in connection with any
requisition, confiscation, condemnation, seizure, or forfeiture of all
or any part of the Collateral; and (e) other amounts from time to time
paid or payable under or in connection with any of the Collateral.
"Relevant State" means California.
"Secured Obligations" means all liabilities, obligations, or
undertakings owing by Debtor to any one or more of Agent, Collateral
Agent, and Banks, of any kind or description arising out of or
outstanding under, advanced or issued pursuant to, or evidenced by the
Central Ram Guaranty, this Agreement, or any other Loan Document to
which Debtor is a party irrespective of whether for the payment of
money, whether direct or indirect, absolute or contingent, due or to
become due, voluntary or involuntary, whether now existing or hereafter
arising, and including all interest (including interest which accrues
after the filing of a case under the Bankruptcy Code) and any and all
costs, fees (including attorneys' fees and expenses), and expenses
which Debtor is required to pay pursuant to any of the foregoing, by
law, or otherwise.
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<PAGE> 5
"Securities" means all present and future right, title and interest of
Debtor in and to any "security," as such term is defined in Section
8102(l)(c) of the Code.
Any term used in this Agreement and not specifically defined in this
Agreement that is defined in the Loan Agreement shall have the meaning
defined for such term in the Loan Agreement when used in this
Agreement. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular and to the
singular include the plural, the part includes the whole, the terms
"include" and "including" are not limiting, and the term "or" has,
except where otherwise indicated, the inclusive meaning represented by
the phrase and/or." The words "hereof," "herein," "hereby,"
"hereunder," and other similar terms in this Agreement refer to this
Agreement as a whole and not exclusively to any particular provision of
this Agreement. Article, section, subsection, exhibit, and schedule
references are to this Agreement unless otherwise specified. All of the
exhibits or schedules attached to this Agreement shall be deemed
incorporated herein by reference. Any reference in this Agreement to
any of the following documents includes any and all alterations,
amendments, restatements, extensions, modifications, renewals, or
supplements thereto or thereof, as applicable; this Agreement; the
other Loan Documents; and the Letters of Credit. Neither this Agreement
nor any uncertainty or ambiguity contained herein shall be construed or
resolved against Collateral Agent or Debtor, whether under any rule of
construction or otherwise. On the contrary, this Agreement has been
reviewed by each of the parties hereto and its counsel and shall be
construed and interpreted according to the ordinary meaning of the
words used so as to accomplish fairly the purposes and intentions of
all parties hereto. In the event of any direct conflict between the
express terms and provisions of this Agreement and those of the Loan
Agreement, the terms and provisions of the Loan Agreement shall
control.
2. The Security Interest. Debtor hereby pledges, grants,
transfers, and assigns to Collateral Agent a security interest in all of
Debtor's right, title, and interest in and to the Collateral in order to secure
the prompt payment and performance in full by Debtor when due, whether at stated
maturity, by acceleration, or otherwise (including amounts that would become due
but for the operation of the automatic stay under Section 362(a) of the
Bankruptcy Code), of all of the Secured Obligations. This Agreement shall create
a continuing security interest in the Collateral and shall: (i) remain in full
force and effect until the indefeasible payment in full of the Secured
Obligations including the cash collateralization, expiration, or cancellation of
all Secured Obligations consisting of Letters of Credit, and the full and final
termination of any commitment to extend any financial accommodations under the
Loan Agreement; (ii) be binding upon Debtor, its successors and assigns; and
(iii) inure to the benefit of Collateral Agent, Agent, and Banks and their
successors, transferees, and assigns. Upon the indefeasible payment in full of
the Secured Obligations including the cash collateralization, expiration, or
cancellation of all Secured Obligations relating to Letters of Credit, and the
full and final termination of any commitment to extend any financial
accommodations under the Loan Agreement, the security interests granted hereby
shall automatically terminate. Upon any such termination, Collateral Agent will,
at Debtor's expense, execute and deliver to Debtor such documents as Debtor
shall reasonably request to evidence such termination; such documents shall be
prepared by Debtor and shall be in form and substance reasonably satisfactory to
Collateral Agent. To the maximum extent
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<PAGE> 6
permitted by law, Debtor hereby waives any right to require Collateral Agent,
Agent, or any Bank to: (A) proceed against or exhaust any security held from
Debtor; or (B) pursue any other remedy in Collateral Agent's, Agent's, or any
Bank's power whatsoever.
3. Delivery of Certain Pledged Collateral- Certificated
Securities and Other Collateral. Except for instruments and items being
processed for collection in the ordinary course of Debtor's business, all
Collateral with respect to which perfection can be obtained only by taking
possession thereof shall be promptly delivered to and held by or on behalf of
Collateral Agent pursuant hereto and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance reasonably satisfactory to
Collateral Agent.
4. Representations and Warranties of Debtor. Debtor
represents, warrants, and covenants as follows: (a) Debtor has taken all steps
it deems necessary or appropriate to be informed on a continuing basis of
changes or potential changes affecting the Collateral, and Debtor agrees that
Collateral Agent shall have no responsibility or liability for informing Debtor
of any such changes or potential changes or for taking any action or omitting to
take any action with respect thereto; (b) All information contained herein or
hereafter supplied in writing to Collateral Agent by or on behalf of Debtor with
respect to the Collateral is, or will be in the case of information hereafter
supplied, accurate and complete in all material respects; (c) Upon the filing of
financing statements and the recordation of fixture filings in the appropriate
filing or recording offices in the Relevant State, this Agreement creates, in
the case of presently existing Collateral, and will create, in the case of after
acquired Collateral, at such time as Debtor acquires rights in such Collateral,
a valid, perfected first priority security interest (subject only to Permitted
Liens) in and to all of such Collateral other than: (i) "goods," as such term is
defined in Section 9105(h) of the Code, constituting Collateral which are
covered by a certificate of title issued under a statute of the State of
California or of another jurisdiction which requires indication of a security
interest on the certificate as a condition of perfection, whether such
certificate is designated a "certificate of title," "certificate of ownership,"
or otherwise; and (ii) that portion of the Collateral for which perfection can
only be obtained by taking possession thereof or by giving notice with respect
thereto; (d) Upon Collateral Agent taking possession thereof or by giving notice
with respect thereto, this Agreement creates, in the case of presently existing
Collateral, and will create, in the case of after acquired Collateral, at such
time as Debtor acquires rights in such Collateral, a valid, perfected first
priority security interest (subject only to Permitted Liens) in and to that
portion of the Collateral for which perfection can only be obtained by taking
possession thereof or by giving notice with respect thereto, as applicable; (e)
Upon the indication of the security interest of Collateral Agent on the
certificate of title covering the items of Collateral set forth in Section
4(c)(i) hereof, this Agreement creates, in the case of such Collateral which is
presently existing, and will create, in the case of such Collateral which is
hereafter acquired, a valid, perfected first priority security interest (subject
only to Permitted Liens) in and to such items of Collateral; (f) All filings,
assignments, notices, and indications necessary to perfect the security
interests of Collateral Agent in and upon the Collateral referenced in clauses
(c), (d), and (e) of this Section 4 and required to be executed by Debtor under
applicable law have been executed by Debtor and delivered by Debtor to
Collateral Agent. All Collateral for which perfection can be obtained only
through possession has been delivered to Collateral Agent; (g)
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<PAGE> 7
The Chief Executive Office of Debtor is located at the street address, city,
county (or equivalent political subdivision), state, and zip code (or equivalent
postal routing code) specified therefor in Part A of Schedule A attached hereto;
(h) All of the Equipment and Inventory is located at the places specified by
street address, city, county (or equivalent political subdivision), state, and
zip code (or equivalent postal routing code) in Part B of Schedule A attached
hereto; (i) The offices where Debtor keeps its Books and Records are located at
the places specified by street address, city, county (or equivalent political
subdivision), state, and zip code (or equivalent postal routing code) and nation
(if other than the United States) in Part C of Schedule A attached hereto; (j)
Debtor does not do business under any trade name or fictitious business name,
except as specified in Part D of Schedule A attached hereto; and (k) except as
otherwise disclosed on the Disclosure Schedule, Debtor has exclusive possession
and control of the Equipment and the Inventory.
5. Further Assurances. Debtor agrees that from time to
time, at the expense of Debtor, Debtor will promptly execute and deliver all
further instruments and documents, and take all further action that may be
necessary or reasonably desirable or that Collateral Agent may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable Collateral Agent to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, Debtor will: (i) at the
request of Collateral Agent, mark conspicuously chattel paper included in the
Accounts; (ii) at the request of Collateral Agent, mark conspicuously each of
its records pertaining to the Collateral with a legend, in form and substance
satisfactory to Collateral Agent, indicating that such Collateral is subject to
the security interest granted hereby; (iii) except for instruments and items
being processed for collection in the ordinary course of Debtor's business, if
any Collateral or Pledged Collateral shall be evidenced by a promissory note or
other instrument, deliver and pledge to Collateral Agent such note or instrument
duly endorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance reasonably satisfactory to Collateral
Agent; (iv) execute and file such financing or continuation statements, or
amendments thereto, and such other documents, instruments, or notices, as may be
necessary or reasonably desirable or as Collateral Agent may reasonably request,
in order to perfect and preserve the security interests granted or purported to
be granted hereby; (v) allow inspection of the Collateral by Collateral Agent or
persons designated by Collateral Agent; and (vi) appear in and defend any action
or proceeding that may affect Debtor's title to or Collateral Agent's security
interest in any or all of the Collateral. Debtor hereby authorizes Collateral
Agent to file one or more financing or continuation statements, and amendments
thereto, relative to all or any part of the Collateral without the signature of
Debtor. A carbon, photographic, photostatic, or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where not prohibited by law;
provided, however, that nothing contained in this Agreement shall relieve Debtor
of its obligations to file all necessary financing and continuation statements
in order to perfect and protect the security interests granted or purported to
be granted hereby. Debtor will furnish to Collateral Agent on the Closing Date
and thereafter, upon the reasonable request of Collateral Agent: (a) a
certificate executed by a Responsible Officer of Debtor, and dated as of the
date of delivery to Collateral Agent, itemizing in such detail as Collateral
Agent may reasonably request, that portion of the Collateral which, as of the
date of such certificate, has been delivered to Collateral Agent by Debtor
pursuant to the provisions of this Agreement; and (b) such statements and
schedules
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<PAGE> 8
further identifying and describing the Collateral and such other reports in
connection with the Collateral as Collateral Agent may reasonably request.
6. Covenants of Debtor. Debtor shall: (a) Notify
Collateral Agent promptly of any change in Debtor's name or the use of any trade
name not set forth in Part D of Schedule A attached hereto; (b) Keep the
Equipment and Inventory (other than Inventory sold in the ordinary course of
business or Equipment and Inventory sold or otherwise disposed of as permitted
by the Loan Agreement) at the places therefor specified in Part B of Schedule A
attached hereto and not move any Equipment or Inventory to a location other than
those locations identified in Part B of Schedule A attached hereto except as may
otherwise be permitted by the Loan Agreement; (c) Keep its Chief Executive
Office and the office(s) where it keeps the Books and Records and all originals
of all chattel paper that evidence Accounts at the locations specified therefor
in Parts A and C, respectively, of Schedule A attached hereto (unless such
chattel paper has been delivered to Collateral Agent), or, upon thirty (30)
calendar days prior written notice to Collateral Agent, at such other locations
designated in such notice; and (d) Continue to collect, at its own expense, all
Amounts due or to become due to Debtor under the Accounts. In connection with
such collections, Debtor shall take such action as Debtor or Collateral Agent
may reasonably deem necessary or advisable to enforce collection of the
Accounts; provided, however, that Collateral Agent shall have the right, at any
time upon the occurrence and during the continuance of an Event of Default, to
notify the Account Debtors or obligors under any Accounts of the assignment of
such Accounts to Collateral Agent and to direct such Account Debtors or obligors
to make payment of all amounts due or to become due to Debtor thereunder
directly to Collateral Agent, and, upon such notification and at the expense of
Debtor, Collateral Agent shall have the right to enforce collection of any such
Accounts and to adjust, settle, or compromise the amount or payment thereof in
the same manner and to the same extent as Debtor might have done. So long as
such Event of Default continues: (i) all amounts and Proceeds received by Debtor
in respect of the Accounts shall be received in trust for the benefit of
Collateral Agent, shall be segregated from other funds of Debtor, and shall be
paid over forthwith to Collateral Agent in the same form as so received (with
any necessary endorsement) to be held as cash collateral and applied as provided
by Section 9 hereof; (ii) Debtor shall not adjust, settle, or compromise the
amount or payment of any Accounts, or release wholly or partly any Account
Debtor or obligor thereof or allow any credit or discount thereon; and (iii) at
the request of Collateral Agent, Debtor shall instruct all customers and other
Persons obligated with respect to all Accounts to make all payments to one or
more other banks in any state in the United States of America (by instructing
that such payments be remitted to a post office box which shall be in the name
and the control of such bank) under a restricted account agreement duly executed
by Debtor and such bank or under other arrangements, in form and substance
satisfactory to Collateral Agent, pursuant to which Debtor shall have
irrevocably instructed such bank (and such bank shall have agreed) to remit all
proceeds of such payments directly to Collateral Agent for deposit into any
collateral account or as Collateral Agent may otherwise instruct such bank.
Debtor will hold and preserve its Books and Records and chattel paper and will
permit representatives of Collateral Agent, Banks, and Agent to inspect and make
abstracts from such Books and Records and chattel paper.
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<PAGE> 9
7. Collateral Agent as Debtor's Attorney-in-Fact. Debtor
hereby irrevocably appoints Collateral Agent as Debtor's attorney-in-fact, with
full authority in the place and stead of Debtor and in the name of Debtor or
otherwise, from time to time after the occurrence and during the continuance of
an Event of Default, to take any action and to execute any instrument or
application that Collateral Agent may reasonably deem necessary or advisable to
accomplish the purposes of this Agreement, including: (a) To obtain and adjust
insurance required to be paid to Collateral Agent; (b) To ask, demand, collect,
sue for, recover, impound, receive, and give acquittance and receipts for moneys
due and to become due under or in respect of any of the Collateral; (c) To
receive, endorse, and collect any checks, drafts, notes or other instruments,
documents, and chattel paper in connection with clauses (a) and (b) of this
Section 7; (d) To file any claims or take any action or institute any
proceedings that Collateral Agent may deem necessary or reasonably desirable for
the collection of any of the Collateral or otherwise to enforce the rights of
Collateral Agent with respect to any of the Collateral; (e) To make, execute,
and deliver any and all documents and writings which may, in Collateral Agent's
judgment, be necessary or reasonably appropriate for approval of, or be required
by, any regulatory authority located in the city, county, state, or country
where Debtor or Debtor's Subsidiaries engage in business, in order to transfer
or to transfer more effectively any of the Collateral or otherwise enforce
Collateral Agent's rights hereunder; and (f) Generally to sell, transfer,
pledge, make any agreement with respect to, or otherwise deal with, any of the
Collateral as fully and completely as though Collateral Agent were the absolute
owner thereof and to do, at Debtor's expense, at any time, or from time to time
all acts and things that Collateral Agent deems reasonably necessary to protect,
preserve, or realize upon the Collateral and Collateral Agent's security
interest therein in order to effect the intent of this Agreement, all as fully
and effectively as Debtor might do.
8. Remedies upon Event of Default. Upon the occurrence
and during the continuance of an Event of Default, Collateral Agent may exercise
in respect of the Collateral, in addition to other rights and remedies provided
for herein or otherwise available to it, all the rights and remedies of a
secured party on default under the Code (irrespective of whether the Code
applies to the affected items of Collateral), and Collateral Agent may also
without notice (except as specified below) sell or otherwise dispose of the
Collateral or any part thereof in one or more parcels at public or private sale,
at any exchange, broker's board, or at any of Collateral Agent's offices or
elsewhere, for cash, on credit, or for future delivery, at such time or times
and at such price or prices and upon such other terms as Collateral Agent may
deem commercially reasonable, irrespective of the impact of any such sales on
the market price of the Collateral. To the maximum extent permitted by
applicable law, Collateral Agent may be the purchaser of any or all of the
Collateral at any such sale and shall be entitled, for the purpose of bidding
and making settlement or payment of the purchase price for all or any portion of
the Collateral sold at any such public sale, to use and apply all or any part of
the Secured Obligations owed to or represented by such credit bidding party as a
credit on account of the purchase price of any Collateral payable by such party
at such sale. Each purchaser at any such sale shall hold the property sold
absolutely free from any claim or right on the part of Debtor, and Debtor hereby
waives (to the maximum extent permitted by law) all rights of redemption, stay,
or appraisal that it now has or may at any time in the future have under any
rule of law or statute now existing or hereafter enacted. Debtor agrees that, to
the extent notice of sale shall be required by law, at least five (5) calendar
days notice to Debtor of the time and place of any public sale or the time after
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<PAGE> 10
which a private sale is to be made shall constitute reasonable notification.
Collateral Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Collateral Agent may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned. To the maximum extent permitted by law,
Debtor hereby waives any claims against Collateral Agent, Lender, Agent, or
Banks arising because the price at which any Collateral may have been sold at
such a private sale was less than the price that might have been obtained at a
public sale, even if Collateral Agent accepts the first offer received and does
not offer such Collateral to more than one offeree.
9. Application of Proceeds. After the occurrence and
during the continuance of an Event of Default, any cash held by Collateral Agent
as Collateral and all cash Proceeds received by Collateral Agent in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral pursuant to the exercise by Collateral Agent of its remedies as a
secured creditor as provided in Section 8 of this Agreement shall be applied
from time to time by Collateral Agent as provided in the Intercreditor
Agreement. At such time as the Secured Obligations are indefeasibly paid in full
in cash, if Collateral Agent holds any excess funds, it shall release them to
Debtor or to the Person or Persons legally entitled thereto, or, if Collateral
Agent has doubts as to whom such funds should be released, Collateral Agent may
interplead such funds.
10. Collateral Agent; Duties; Standard of Care. The
powers conferred on Collateral Agent hereunder are solely to protect its,
Agent's, and Banks' interests in the Collateral and shall not impose on it,
Agent, or Banks any duty to exercise such powers. Collateral Agent shall have no
duty with respect to the Collateral or any responsibility for taking any
necessary steps to preserve rights against any Persons with respect to any
Collateral. Collateral Agent shall be deemed to have exercised reasonable care
in the custody and preservation of Collateral at any time in its possession if
Collateral Agent exercises the same degree of care with respect thereto as it
exercises with respect to its own property. Collateral Agent shall act or not
act, and the powers of Collateral Agent to act on behalf of Agent and the Banks
shall be, as set forth in the Intercreditor Agreement.
11. Debtor Remains Liable. Notwithstanding anything to
the contrary contained in this Agreement: (a) Debtor shall remain liable under
the contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed; (b) the exercise by
Collateral Agent of any of its rights hereunder shall not release Debtor from
any of its duties or obligations under the contracts and agreements included in
the Collateral; and (c) Collateral Agent shall not have any obligation or
liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall Collateral Agent be obligated to perform any
of the obligations thereunder.
12. Rights of Collateral Agent, Agent and Banks Inter Se.
The rights, inter se, of Collateral Agent, Agent and Banks with respect to the
Collateral shall be as set forth in the Intercreditor Agreement.
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<PAGE> 11
13. Choice of Governing Law. Except as may otherwise be
specifically set forth in the Loan Agreement: (a) this Agreement shall be deemed
to have been made in the State of California; and (b) the validity of this
Agreement, and the construction, interpretation, and enforcement hereof, and the
rights of the parties hereto shall be determined under, governed by, and
construed in accordance with the laws of the State of California.
14. Amendments. No amendment or waiver of any provision
of this Agreement nor consent to any departure by Debtor herefrom shall under
any circumstances be effective unless the same shall be in writing and signed by
Collateral Agent, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No failure on
the part of Collateral Agent, Agent, or any Bank to exercise, and no delay in
exercising, any right under this Agreement, the Loan Agreement, or otherwise
with respect to any of the Secured Obligations shall operate as a waiver
thereof, nor shall any single or partial exercise of any right under this
Agreement, the Loan Agreement, or otherwise with respect to any of the Secured
Obligations preclude any other or further exercise thereof or the exercise of
any other right. The remedies provided for in this Agreement or otherwise with
respect to any of the Secured Obligations are cumulative and not exclusive of
any remedies provided by law. Any amendment, modification, restatement,
supplement, termination, waiver, or consent hereto or hereof shall be binding
upon Debtor to the extent that Debtor has executed and delivered same.
15. Notices. Unless otherwise specifically provided
herein, all notices, demands, instructions, requests, and other communications
required or permitted to be given to, or made upon, any party hereto shall be in
writing and shall be personally delivered or sent by registered or certified
mail, postage prepaid, return receipt requested, and shall be deemed to be given
for purposes of this Agreement on the day that such writing is received by the
Person to whom it is to be sent pursuant to the provisions of this Agreement.
Unless otherwise specified in a notice sent or delivered in accordance with the
foregoing provisions of this Section 15, notices, demands, requests,
instructions, and other communications in writing shall be given to or made upon
the respective parties hereto at their respective addresses specified on the
signature pages to this Agreement.
16. Headings. Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement or be given any substantive effect.
17. Severability. In case any provision in or obligation
under this Agreement shall be invalid, illegal, or unenforceable in any
jurisdiction, the validity, legality, and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
18. Counterparts. This Agreement may be executed in one
or more counterparts or duplicates, each of which shall be deemed an original.
All of such counterparts, taken together, shall constitute one and the same
Agreement.
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<PAGE> 12
19. Waiver of Marshaling. Debtor and Collateral Agent
acknowledge and agree that, in exercising any rights under or with respect to
the Collateral, Collateral Agent: (a) is under no obligation to marshal any
Collateral; (b) may, in its discretion, but subject to the provisions of the
Intercreditor Agreement and subject to the provisions of any intercreditor
agreements from time to time in effect with Floor Plan Lenders of Debtor,
realize upon such Collateral in any order and in any manner it so elects; and
(c) may, in its discretion, but subject to the provisions of the Intercreditor
Agreement and subject to the provisions of any intercreditor agreements from
time to time in effect with Floor Plan Lenders of Debtor, apply the proceeds of
any or all of such Collateral to the obligations secured by the Collateral in
any order and in any manner it so elects. Debtor and Collateral Agent each waive
any right to require the marshaling of any Collateral, including any right
pursuant to Sections 2899 and 3433 of the California Civil Code.
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<PAGE> 13
IN WITNESS WHEREOF, Debtor and Collateral Agent have caused
this Agreement to be duly executed and delivered by their officers thereunto
duly authorized as of the date first written above.
BANK OF AMERICA NATIONAL TRUST CENTRAL RAM, INC.,
AND SAVINGS ASSOCIATION, as a Delaware corporation
Collateral Agent
By:__________________________ By:___________________________
Its:_________________________ Its:__________________________
Notice Address: Notice Address:
BANK OF AMERICA NATIONAL TRUST CENTRAL RAM, INC.
AND SAVINGS ASSOCIATION 5480 Ferguson Drive
Agency Management Services #5596 Commerce, CA 90022
1455 Market Street, 12th Floor Attn: __________________
San Francisco, CA 94103 Telephone: (213) 720-8631
Attn: Daniel G. Farthing, V.P. Facsimile: (213) 720-8607
Telephone: (415) 436-3431
Facsimile: (415) 436-2700
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<PAGE> 14
SCHEDULE A
TO
SECURITY AGREEMENT
PART A
Chief Executive Office
5480 Ferguson
Commerce, California 90022
PART B
Inventory and Equipment Locations
2293 Mission Street
San Francisco, California 94110
2301 Mission Street
San Francisco, California 94110
2345 MacDonald Avenue
Richmond, California 94804
1019 Clay Street
Oakland, California 94607
995 East Santa Clara Street
San Jose, California 95116
352 Shaw Road
San Francisco, California 94080
560 Valencia Street
San Francisco, California 94110
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<PAGE> 15
PART C
Books and Records Location
5480 Ferguson
Commerce, California 90022
PART D
Trade Name
Ramco
Ramco Furniture
Golden Gate
Golden Gate Furniture
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<PAGE> 1
Exhibit 10.16
CENTRAL INSTALLMENT CREDIT CORPORATION
SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of June 24, 1996, is entered into
between Debtor and Collateral Agent, with reference to the facts that: (A)
Debtor, BCE, Agent and Banks contemporaneously herewith are entering into the
Loan Agreement; and (B) Debtor desires to grant to Collateral Agent a security
interest in the Collateral as security for the Secured Obligations.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations, and warranties set forth herein and for other good and valuable
consideration, the parties hereto agree as follows:
1. Definitions and Construction. As used herein, the following terms shall
have the meanings respectively set forth after each:
"Account Debtor" shall have the meaning ascribed thereto in Section
9105 of the Code.
"Accounts" means all of Debtor's presently existing and hereafter
arising: (a) accounts (including all "accounts" as such term is defined in
Section 9106 of the Code); (b) chattel paper (including all "chattel paper" as
such term is defined in Section 9105(l)(b) of the Code), including certificated
securities (as such term is defined in Section 8102 of the Code) and instruments
(as such term is defined in Section 9105(l)(i) of the Code) constituting part of
"chattel paper" as such term is defined in Section 9105(l)(b) of the Code; (c)
contract rights; and (d) credit insurance, guarantees, and letters of credit
with respect to which Debtor is the beneficiary, together with any security for
any of the foregoing.
"Agent" means Bank of America National Trust and Savings Association
and its successors, as agent for Banks under the Loan Agreement, and any
successor agent appointed pursuant to the provisions of the Loan Agreement.
"Agreement" means this Security Agreement.
"Bankruptcy Code" means The Bankruptcy Reform Act of 1978 (11 U.S.C.
Section Section 101-1330), as amended or supplemented from time to time, and any
successor statute, and all of the rules issued or promulgated in connection
therewith.
"Banks" means all Persons which now or hereafter are signatories to the
Loan Agreement in such capacity.
"BCE" means Banner's Central Electric, Inc., a California corporation.
"Books and Records" means all of Debtor's present and future books and
records, including accounting journals and ledgers, deposit account statements,
computer programs, disc
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<PAGE> 2
or tape files, printouts, and other computer-prepared information, which in each
case summarizes, evidences, provides information concerning, or is used in
connection with, all or any part of the Collateral.
"CFR" means the Code of Federal Regulations, as amended or supplemented
from time to time.
"Chief Executive Office" means the place or location where Debtor is
deemed located pursuant to the provisions of Section 9103(3)(d) of the Code.
"Code" means the California Uniform Commercial Code, as amended or
supplemented from time to time.
"Collateral" means the Accounts, the Books and Records, the Documents,
the Equipment, the General Intangibles, the Inventory, the Money, the Pledged
Collateral, the Securities, and the Proceeds; provided, however, that,
notwithstanding anything to the contrary contained in this Agreement, the
Collateral hereunder does not include any "infectious waste", "restricted
hazardous waste", or "hazardous waste" as those terms are defined under one or
more of 42 U.S.C. Section 6903(5) and California Health & Safety Code Section
Section 25117, 25117.5, and 25122.7, as any one or more of the foregoing
sections may be from time to time amended, or under any regulations thereunder.
"Collateral Agent" means Bank of America National Trust and Savings
Association and its successors, in its capacity as collateral agent for Agent
and Banks pursuant to the Intercreditor Agreement, and any successor collateral
agent appointed pursuant to the provisions of the Intercreditor Agreement.
"Debtor" means Central Installment Credit Corporation, a California
corporation.
"Default" means any Event of Default or any Unmatured Event of Default
or any default under the Loan Agreement.
"Documents" means all present and future right, title and interest of
Debtor in and to any "Documents of title," as such term is defined in Section
1201(15) of the Code.
"Equipment" means all of Debtor's presently existing or hereafter
acquired or created equipment (including all "equipment", as such term is
defined in Section 9109(2) of the Code) in all of its forms, wherever located,
and all parts thereof and all accessions thereto and documents therefor,
including fixtures, furnishings, furniture, heavy equipment, jibs, machinery,
molds, motors, pallets, tooling, tools, and trade fixtures, and all cars,
forklifts, rolling stock, tractors, trucks, and other vehicles, and any and all
spare and replacement parts and supplies used in connection with the maintenance
or operation of any one or more of the foregoing.
"General Intangibles" means all of Debtor's presently existing and
hereafter arising general intangibles (including all "general intangibles," as
such term is defined in Section 9106 of the
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<PAGE> 3
Code), including all: blueprints; catalogs; choses or things in action; computer
disks; computer programs; computer tapes; customer lists; deposit accounts
(including all "deposit accounts," as such term is defined in Section 9105(l)(e)
of the Code); drawings; goodwill; literature; claims due or recoverable from
pension funds; patents; patent rights; purchase orders; reports; route lists;
service marks; service mark rights; software; tax refunds; tax refund claims;
trade names; trade name rights; trademarks; trademark rights; rights to receive
and interests in insurance settlement proceeds; rights under or pursuant to
interest rate protection, swap, hedge or cap agreements; rights under or
pursuant to subscription agreements or net worth maintenance agreements; rights
under licensing, distribution, representation, agency, sales, and other
contracts or agreements; claims for damages to persons or Assets; interests in
and rights to receive distributions of Assets with respect to general
partnerships, limited partnerships, joint ventures, trusts, estates of deceased
persons (irrespective of whether in probate), and unincorporated associations;
rights to payment and other rights under any guaranty, indemnity, or right of
contribution or subrogation; rights with respect to any approval, certification,
license, or permit issued by or under the authority of any governmental entity,
or any subdivision, department, or agency thereof, including to the maximum
extent permitted by law, licenses issued to Debtor by any alcoholic beverage
licensing authority; rights with respect to or interests in any minerals or the
like (including oil or gas) before extraction and which attach thereto as
extracted; and rights in and to all security agreements, leases, or other
contracts securing or otherwise relating to any of the foregoing or any Account
or any Pledged Collateral.
"Intercreditor Agreement" means that certain Second Amended and
Restated Collateral Agency Intercreditor Agreement, dated as of June 24, 1996,
entered into between Agent, Collateral Agent, and Banks.
"Inventory" means all of Debtor's presently existing or hereafter
acquired or created inventory (including all "inventory" as such term is defined
in Section 9109(4) of the Code) in all of its forms, wherever located (whether
in the possession of Debtor or a bailee or other person for storage, transit, or
otherwise), including: (a) all "goods," as such term is defined in Section
9105(l)(h) of the Code, manufactured or assembled or held for sale or lease or
to be furnished under any contract of service; (b) raw materials; (c) work in
process; (d) finished goods; (e) all merchandise or "goods" as such term is
defined in Section 9105(l)(h) of the Code, which are returned to or repossessed
by Debtor; (f) all materials used or consumed in Debtor's business; and (g) all
additions and accessions to any of the foregoing and all replacements and
products of any of the foregoing together with all containers, packing,
packaging, or shipping materials related thereto.
"Loan Agreement" means that certain Third Amended and Restated Loan
Agreement, dated as of June 24, 1996, among Debtor, BCE, Banks, and Agent.
"Money" means all present and future right, title and interest of
Debtor in and to any "Money," as such term is defined in Section 9102(24) of the
Code.
"Pledged Collateral" means all presently existing and hereafter
acquired or created indebtedness held by Debtor, and all evidences of such
indebtedness, including all instruments (including all "instruments" as such
term is defined in Section 9105(i) of the Code), cash, and other
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<PAGE> 4
Assets from time to time received, receivable, or otherwise distributed in
respect of, in exchange for, or on account of such indebtedness.
"Proceeds" means all proceeds (including proceeds of proceeds) of the
Collateral, including all: (a) rights, benefits, distributions, premiums,
profits, dividends, interest, cash, Accounts, Documents, Equipment, General
Intangibles, Inventory, Money, Pledged Collateral, Securities, and other Assets
from time to time received, receivable, or otherwise distributed in respect of,
or in exchange for, or as a replacement of or a substitution for, any of the
Collateral; (b) "proceeds," as such term is defined in Section 9306 of the Code;
(c) proceeds of any insurance, indemnity, warranty, or guarantee (including
guarantees of delivery) payable from time to time with respect to any of the
Collateral; (d) payments (in any form whatsoever) made or due and payable to
Debtor from time to time in connection with any requisition, confiscation,
condemnation, seizure, or forfeiture of all or any part of the Collateral; and
(e) other amounts from time to time paid or payable under or in connection with
any of the Collateral.
"Relevant State" means California.
"Secured Obligations" means all liabilities, obligations, or
undertakings owing by Debtor to any one or more of Agent, Collateral Agent, and
Banks, of any kind or description arising out of or outstanding under, advanced
or issued pursuant to, or evidenced by the Loan Agreement, this Agreement, or
any other Loan Document to which Debtor is a party, irrespective of whether for
the payment of money, whether direct or indirect, absolute or contingent, due or
to become due, voluntary or involuntary, whether now existing or hereafter
arising, and including all interest (including interest which accrues after the
filing of a case under the Bankruptcy Code) and any and all costs, fees
(including attorneys' fees and expenses), and expenses which Debtor is required
to pay pursuant to any of the foregoing, by law, or otherwise.
"Securities" means all present and future right, title and interest of
Debtor in and to any "security," as such term is defined in Section 8102(l)(c)
of the Code.
Any term used in this Agreement and not specifically defined in this
Agreement that is defined in the Loan Agreement shall have the meaning defined
for such term in the Loan Agreement when used in this Agreement. Unless the
context of this Agreement clearly requires otherwise, references to the plural
include the singular and to the singular include the plural, the part includes
the whole, the terms "include" and "including" are not limiting, and the term
"or" has, except where otherwise indicated, the inclusive meaning represented by
the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and
other similar terms in this Agreement refer to this Agreement as a whole and not
exclusively to any particular provision of this Agreement. Article, section,
subsection, exhibit, and schedule references are to this Agreement unless
otherwise specified. All of the exhibits or schedules attached to this Agreement
shall be deemed incorporated herein by reference. Any reference in this
Agreement to any of the following documents includes any and all alterations,
amendments, restatements, extensions, modifications, renewals, or supplements
thereto or thereof, as applicable: this Agreement; the other Loan Documents; and
the Letters of Credit. Neither this Agreement nor any uncertainty or ambiguity
contained herein shall be construed or resolved against Collateral Agent or
Debtor,
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<PAGE> 5
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by each of the parties hereto and its counsel and
shall be construed and interpreted according to the ordinary meaning of the
words used so as to accomplish fairly the purposes and intentions of all parties
hereto. In the event of any direct conflict between the express terms and
provisions of this Agreement and those of the Loan Agreement, the terms and
provisions of the Loan Agreement shall control.
2. The Security Interest. Debtor hereby pledges, grants, transfers, and
assigns to Collateral Agent a security interest in all of Debtor's right, title,
and interest in and to the Collateral in order to secure the prompt payment and
performance in full by Debtor when due, whether at stated maturity, by
acceleration, or otherwise (including amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code), of
all of the Secured Obligations. This Agreement shall create a continuing
security interest in the Collateral and shall: (i) remain in full force and
effect until the indefeasible payment in full of the Secured Obligations
including the cash collateralization, expiration, or cancellation of all Secured
Obligations consisting of Letters of Credit, and the full and final termination
of any commitment to extend any financial accommodations under the Loan
Agreement; (ii) be binding upon Debtor, its successors and assigns; and (iii)
inure to the benefit of Collateral Agent, Agent, and Banks and their successors,
transferees, and assigns. Upon the indefeasible payment in full of the Secured
Obligations including the cash collateralization, expiration, or cancellation of
all Secured Obligations relating to Letters of Credit, and the full and final
termination of any commitment to extend any financial accommodations under the
Loan Agreement, the security interests granted hereby shall automatically
terminate. Upon any such termination, Collateral Agent will, at Debtor's
expense, execute and deliver to Debtor such documents as Debtor shall reasonably
request to evidence such termination; such documents shall be prepared by Debtor
and shall be in form and substance reasonably satisfactory to Collateral Agent.
To the maximum extent permitted by law, Debtor hereby waives any right to
require Collateral Agent, Agent, or any Bank to: (A) proceed against or exhaust
any security held from Debtor; or (B) pursue any other remedy in Collateral
Agent's, Agent's, or any Bank's power whatsoever.
3. Delivery of Certain Pledged Collateral, Certificated Securities and
Other Collateral. Except for instruments and items being processed for
collection in the ordinary course of Debtor's business, all Collateral with
respect to which perfection can be obtained only by taking possession thereof
shall be promptly delivered to and held by or on behalf of Collateral Agent
pursuant hereto and shall be in suitable form for transfer by delivery, or shall
be accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance reasonably satisfactory to Collateral Agent.
4. Representations and Warranties of Debtor. Debtor represents,
warrants, and covenants as follows: (a) Debtor has taken all steps it deems
necessary or appropriate to be informed on a continuing basis of changes or
potential changes affecting the Collateral, and Debtor agrees that Collateral
Agent shall have no responsibility or liability for informing Debtor of any such
changes or potential changes or for taking any action or omitting to take any
action with respect thereto; (b) All information contained herein or hereafter
supplied in writing to Collateral Agent by or on behalf of Debtor with respect
to the Collateral is, or will be in the case
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<PAGE> 6
of information hereafter supplied, accurate and complete in all material
respects; (c) Upon the filing of financing statements and the recordation of
fixture filings in the appropriate filing or recording offices in the Relevant
State, this Agreement creates, in the case of presently existing Collateral, and
will create, in the case of after acquired Collateral, at such time as Debtor
acquires rights in such Collateral, a valid, perfected first priority security
interest (subject only to Permitted Liens) in and to all of such Collateral
other than: (i) "goods," as such term is defined in Section 9105(h) of the Code,
constituting Collateral which are covered by a certificate of title issued under
a statute of the State of California or of another jurisdiction which requires
indication of a security interest on the certificate as a condition of
perfection, whether such certificate is designated a "certificate of title,"
"certificate of ownership," or otherwise; and (ii) that portion of the
Collateral for which perfection can only be obtained by taking possession
thereof or by giving notice with respect thereto; (d) Upon Collateral Agent
taking possession thereof or by giving notice with respect thereto, this
Agreement creates, in the case of presently existing Collateral, and will
create, in the case of after acquired Collateral, at such time as Debtor
acquires rights in such Collateral, a valid, perfected first priority security
interest (subject only to Permitted Liens) in and to that portion of the
Collateral for which perfection can only be obtained by taking possession
thereof or by giving notice with respect thereto, as applicable; (e) Upon the
indication of the security interest of Collateral Agent on the certificate of
title covering the items of Collateral set forth in Section 4(c)(i) hereof, this
Agreement creates, in the case of such Collateral which is presently existing,
and will create, in the case of such Collateral which is hereafter acquired, a
valid, perfected first priority security interest (subject only to Permitted
Liens) in and to such items of Collateral; (f) All filings, assignments,
notices, and indications necessary to perfect the security interests of
Collateral Agent in and upon the Collateral referenced in clauses (c), (d), and
(e) of this Section 4 and required to be executed by Debtor under applicable law
have been executed by Debtor and delivered by Debtor to Collateral Agent. All
Collateral for which perfection can be obtained only through possession has been
delivered to Collateral Agent; (g) The Chief Executive Office of Debtor is
located at the street address, city, county (or equivalent political
subdivision), state, and zip code (or equivalent postal routing code) specified
therefor in Part A of Schedule A attached hereto; (h) All of the Equipment and
Inventory is located at the places specified by street address, city, county (or
equivalent political subdivision), state, and zip code (or equivalent postal
routing code) in Part B of Schedule A attached hereto; (i) The offices where
Debtor keeps its Books and Records are located at the places specified by street
address, city, county (or equivalent political subdivision), state, and zip code
(or equivalent postal routing code) and nation (if other than the United States)
in Part C of Schedule A attached hereto; (j) Debtor does not do business under
any trade name or fictitious business name, except as specified in Part D of
Schedule A attached hereto; and (k) except as otherwise disclosed on the
Disclosure Schedule, Debtor has exclusive possession and control of the
Equipment and the Inventory.
5. Further Assurances. Debtor agrees that from time to time, at the
expense of Debtor, Debtor will promptly execute and deliver all further
instruments and documents, and take all further action that may be necessary or
reasonably desirable or that Collateral Agent may reasonably request, in order
to perfect and protect any security interest granted or purported to be granted
hereby or to enable Collateral Agent to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, Debtor will: (i) at the request of Collateral
Agent, mark conspicuously chattel paper included in the
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<PAGE> 7
Accounts; (ii) at the request of Collateral Agent, mark conspicuously each of
its records pertaining to the Collateral with a legend, in form and substance
satisfactory to Collateral Agent, indicating that such Collateral is subject to
the security interest granted hereby; (iii) except for instruments and items
being processed for collection in the ordinary course of Debtor's business, if
any Collateral or Pledged Collateral shall be evidenced by a promissory note or
other instrument, deliver and pledge to Collateral Agent such note or instrument
duly endorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance reasonably satisfactory to Collateral
Agent; (iv) execute and file such financing or continuation statements, or
amendments thereto, and such other documents, instruments, or notices, as may be
necessary or reasonably desirable or as Collateral Agent may reasonably request,
in order to perfect and preserve the security interests granted or purported to
be granted hereby; (v) allow inspection of the Collateral by Collateral Agent or
persons designated by Collateral Agent; and (vi) appear in and defend any action
or proceeding that may affect Debtor's title to or Collateral Agent's security
interest in any or all of the Collateral. Debtor hereby authorizes Collateral
Agent to file one or more financing or continuation statements, and amendments
thereto, relative to all or any part of the Collateral without the signature of
Debtor. A carbon, photographic, photostatic, or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where not prohibited by law;
provided, however, that nothing contained in this Agreement shall relieve Debtor
of its obligations to file all necessary financing and continuation statements
in order to perfect and protect the security interests granted or purported to
be granted hereby. Debtor will furnish to Collateral Agent on the Closing Date
and thereafter, upon the reasonable request of Collateral Agent: (a) a
certificate executed by a Responsible Officer of Debtor, and dated as of the
date of delivery to Collateral Agent, itemizing in such detail as Collateral
Agent may reasonably request, that portion of the Collateral which, as of the
date of such certificate, has been delivered to Collateral Agent by Debtor
pursuant to the provisions of this Agreement; and (b) such statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Collateral Agent may reasonably
request.
6. Covenants of Debtor. Debtor shall: (a) Notify Collateral Agent
promptly of any change in Debtor's name or the use of any trade name not set
forth in Part D of Schedule A attached hereto; (b) Keep the Equipment and
Inventory (other than Inventory sold in the ordinary course of business or
Equipment and Inventory sold or otherwise disposed of as permitted by the Loan
Agreement) at the places therefor specified in Part B of Schedule A attached
hereto and not move any Equipment or Inventory to a location other than those
locations identified in Part B of Schedule A attached hereto except as may
otherwise be permitted by the Loan Agreement; (c) Keep its Chief Executive
Office and the office(s) where it keeps the Books and Records and all originals
of all chattel paper that evidence Accounts at the locations specified therefor
in Parts A and C, respectively, of Schedule A attached hereto (unless such
chattel paper has been delivered to Collateral Agent), or, upon thirty (30)
calendar days prior written notice to Collateral Agent, at such other locations
designated in such notice; and (d) Continue to collect, at its own expense, all
amounts due or to become due to Debtor under the Accounts. In connection with
such collections, Debtor shall take such action as Debtor or Collateral Agent
may reasonably deem necessary or advisable to enforce collection of the
Accounts; provided, however, that Collateral Agent shall have the right, at any
time upon the occurrence and during the continuance
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<PAGE> 8
of an Event of Default, to notify the Account Debtors or obligors under any
Accounts of the assignment of such Accounts to Collateral Agent and to direct
such Account Debtors or obligors to make payment of all amounts due or to become
due to Debtor thereunder directly to Collateral Agent, and, upon such
notification and at the expense of Debtor, Collateral Agent shall have the right
to enforce collection of any such Accounts and to adjust, settle, or compromise
the amount or payment thereof in the same manner and to the same extent as
Debtor might have done. So long as such Event of Default continues: (i) all
amounts and Proceeds received by Debtor in respect of the Accounts shall be
received in trust for the benefit of Collateral Agent, shall be segregated from
other funds of Debtor, and shall be paid over forthwith to Collateral Agent in
the same form as so received (with any necessary endorsement) to be held as cash
collateral and applied as provided by Section 9 hereof; (ii) Debtor shall not
adjust, settle, or compromise the amount or payment of any Accounts, or release
wholly or partly any Account Debtor or obligor thereof or allow any credit or
discount thereon; and (iii) at the request of Collateral Agent, Debtor shall
instruct all customers and other Persons obligated with respect to all Accounts
to make all payments to one or more other banks in any state in the United
States of America (by instructing that such payments be remitted to a post
office box which shall be in the name and the control of such bank) under a
restricted account agreement duly executed by Debtor and such bank or under
other arrangements, in form and substance satisfactory to Collateral Agent,
pursuant to which Debtor shall have irrevocably instructed such bank (and such
bank shall have agreed) to remit all proceeds of such payments directly to
Collateral Agent for deposit into any collateral account or as Collateral Agent
may otherwise instruct such bank. Debtor will hold and preserve its Books and
Records and chattel paper and will permit representatives of Collateral Agent,
Banks, and Agent to inspect and make abstracts from such Books and Records and
chattel paper.
7. Collateral Agent as Debtor's Attorney-in-Fact. Debtor hereby
irrevocably appoints Collateral Agent as Debtor's attorney-in-fact, with full
authority in the place and stead of Debtor and in the name of Debtor or
otherwise, from time to time after the occurrence and during the continuance of
an Event of Default, to take any action and to execute any instrument or
application that Collateral Agent may reasonably deem necessary or advisable to
accomplish the purposes of this Agreement, including: (a) To obtain and adjust
insurance required to be paid to Collateral Agent; (b) To ask, demand, collect,
sue for, recover, impound, receive, and give acquittance and receipts for moneys
due and to become due under or in respect of any of the Collateral; (c) To
receive, endorse, and collect any checks, drafts, notes or other instruments,
documents, and chattel paper in connection with clauses (a) and (b) of this
Section 7; (d) To file any claims or take any action or institute any
proceedings that Collateral Agent may deem necessary or reasonably desirable for
the collection of any of the Collateral or otherwise to enforce the rights of
Collateral Agent with respect to any of the Collateral; (e) To make, execute,
and deliver any and all documents and writings which may, in Collateral Agent's
judgment, be necessary or reasonably appropriate for approval of, or be required
by, any regulatory authority located in the city, county, state, or country
where Debtor or Debtor's Subsidiaries engage in business, in order to transfer
or to transfer more effectively any of the Collateral or otherwise enforce
Collateral Agent's rights hereunder; and (f) Generally to sell, transfer,
pledge, make any agreement with respect to, or otherwise deal with, any of the
collateral as fully and completely as though Collateral Agent were the absolute
owner thereof and to do, at Debtor's expense, at any time, or from time to time
all acts and things that Collateral Agent deems reasonably necessary
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<PAGE> 9
to protect, preserve, or realize upon the Collateral and Collateral Agent's
security interest therein in order to effect the intent of this Agreement, all
as fully and effectively as Debtor might do.
8. Remedies Upon Event of Default. Upon the occurrence and during the
continuance of an Event of Default, Collateral Agent may exercise in respect of
the Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the Code (irrespective of whether the Code applies to the affected
items of Collateral), and Collateral Agent may also without notice (except as
specified below) sell or otherwise dispose of the Collateral or any part thereof
in one or more parcels at public or private sale, at any exchange, broker's
board, or at any of Collateral Agent's offices or elsewhere, for cash, on
credit, or for future delivery, at such time or times and at such price or
prices and upon such other terms as Collateral Agent may deem commercially
reasonable, irrespective of the impact of any such sales on the market price of
the Collateral. To the maximum extent permitted by applicable law, Collateral
Agent may be the purchaser of any or all of the Collateral at any such sale and
shall be entitled, for the purpose of bidding and making settlement or payment
of the purchase price for all or any portion of the Collateral sold at any such
public sale, to use and apply all or any part of the Secured obligations owed to
or represented by such credit bidding party as a credit on account of the
purchase price of any Collateral payable by such party at such sale. Each
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right on the part of Debtor, and Debtor hereby waives (to the maximum
extent permitted by law) all rights of redemption, stay, or appraisal that it
now has or may at any time in the future have under any rule of law or statute
now existing or hereafter enacted. Debtor agrees that, to the extent notice of
sale shall be required by law, at least five (5) calendar days notice to Debtor
of the time and place of any public sale or the time after which a private sale
is to be made shall constitute reasonable notification. Collateral Agent shall
not be obligated to make any sale of Collateral regardless of notice of sale
having been given. Collateral Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. To the maximum extent permitted by law, Debtor hereby waives any
claims against Collateral Agent, Lender, Agent, or Banks arising because the
price at which any Collateral may have been sold at such a private sale was less
than the price that might have been obtained at a public sale, even if
Collateral Agent accepts the first offer received and does not offer such
Collateral to more than one offeree.
9. Application of Proceeds. After the occurrence and during the
continuance of an Event of Default, any cash held by Collateral Agent as
Collateral and all cash Proceeds received by Collateral Agent in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral pursuant to the exercise by Collateral Agent of its remedies as a
secured creditor as provided in Section 8 of this Agreement shall be applied
from time to time by Collateral Agent as provided in the Intercreditor
Agreement. At such time as the Secured Obligations are indefeasibly paid in full
in cash, if Collateral Agent holds any excess funds, it shall release them to
Debtor or to the Person or Persons legally entitled thereto, or, if Collateral
Agent has doubts as to whom such funds should be released, Collateral Agent may
interplead such funds.
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<PAGE> 10
10. Collateral Agent; Duties; Standard of Care. The powers conferred on
Collateral Agent hereunder are solely to protect its, Agent's, and Banks'
interests in the Collateral and shall not impose on it, Agent, or Banks any duty
to exercise such powers. Collateral Agent shall have no duty with respect to the
Collateral or any responsibility for taking any necessary steps to preserve
rights against any Persons with respect to any Collateral. Secured Party shall
be deemed to have exercised reasonable care in the custody and preservation of
Collateral at any time in its possession if Secured Party exercises the same
degree of care with respect thereto as it exercises with respect to its own
property. Collateral Agent shall act or not act, and the powers of Collateral
Agent to act on behalf of Agent and the Banks shall be, as set forth in the
Intercreditor Agreement.
11. Debtor Remains Liable. Notwithstanding anything to the contrary
contained in this Agreement: (a) Debtor shall remain liable under the contracts
and agreements included in the Collateral to the extent set forth therein to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed; (b) the exercise by Collateral Agent of
any of its rights hereunder shall not release Debtor from any of its duties or
obligations under the contracts and agreements included in the Collateral; and
(c) Collateral Agent shall not have any obligation or liability under the
contracts and agreements included in the Collateral by reason of this Agreement,
nor shall Collateral Agent be obligated to perform any of the obligations
thereunder.
12. Rights of Collateral Agent, Agent and Banks Inter Se. The rights,
inter se, of Collateral Agent, Agent and Banks with respect to the Collateral
shall be as set forth in the Intercreditor Agreement.
13. Choice of Governing Law. Except as may otherwise be specifically
set forth in the Loan Agreement: (a) this Agreement shall be deemed to have been
made in the State of California; and (b) the validity of this Agreement, and the
construction, interpretation, and enforcement hereof, and the rights of the
parties hereto shall be determined under, governed by, and construed in
accordance with the laws of the State of California.
14. Amendments. No amendment or waiver of any provision of this
Agreement nor consent to any departure by Debtor herefrom shall under any
circumstances be effective unless the same shall be in writing and signed by
Collateral Agent, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No failure on
the part of Collateral Agent, Agent, or any Bank to exercise, and no delay in
exercising, any right under this Agreement, the Loan Agreement, or otherwise
with respect to any of the Secured Obligations shall operate as a waiver
thereof, nor shall any single or partial exercise of any right under this
Agreement, the Loan Agreement, or otherwise with respect to any of the Secured
Obligations preclude any other or further exercise thereof or the exercise of
any other right. The remedies provided for in this Agreement or otherwise with
respect to any of the Secured Obligations are cumulative and not exclusive of
any remedies provided by law. Any amendment, modification, restatement,
supplement, termination, waiver, or consent hereto or hereof shall be binding
upon Debtor to the extent that Debtor has executed and delivered same.
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<PAGE> 11
15. Notices. Unless otherwise specifically provided herein, all
notices, demands, instructions, requests, and other communications required or
permitted to be given to, or made upon, any party hereto shall be in writing and
shall be personally delivered or sent by registered or certified mail, postage
prepaid, return receipt requested, and shall be deemed to be given for purposes
of this Agreement on the day that such writing is received by the Person to whom
it is to be sent pursuant to the provisions of this Agreement. Unless otherwise
specified in a notice sent or delivered in accordance with the foregoing
provisions of this Section 15, notices, demands, requests, instructions, and
other communications in writing shall be given to or made upon the respective
parties hereto at their respective addresses specified on the signature pages to
this Agreement.
16. Headings. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement or be given any substantive effect.
17. Severability. In case any provision in or obligation under this
Agreement shall be invalid, illegal, or unenforceable in any jurisdiction, the
validity, legality, and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
18. Counterparts. This Agreement may be executed in one or more
counterparts or duplicates, each of which shall be deemed an original. All of
such counterparts, taken together, shall constitute one and the same Agreement.
19. Waiver of Marshaling. Debtor and Collateral Agent acknowledge and
agree that, in exercising any rights under or with respect to the Collateral,
Collateral Agent: (a) is under no obligation to marshal any Collateral; (b) may,
in its discretion, but subject to the provisions of the Intercreditor Agreement
and subject to the provisions of any intercreditor agreements from time to time
in effect with Floor Plan Lenders of Debtor, realize upon such Collateral in any
order and in any manner it so elects; and (c) may, in its discretion, but
subject to the provisions of the Intercreditor Agreement and subject to the
provisions of any intercreditor agreements from time to time in effect with
Floor Plan Lenders of Debtor, apply the proceeds of any or all of such
Collateral to the obligations secured by the Collateral in any order and in any
manner it so elects. Debtor and Collateral Agent each waive any right to require
the marshaling of any Collateral, including any right pursuant to Section
Section 2899 and 3433 of the California Civil Code.
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<PAGE> 12
IN WITNESS WHEREOF, Debtor and Collateral Agent have caused this
Agreement to be duly executed and delivered by their officers thereunto duly
authorized as of the date first written above.
BANK OF AMERICA NATIONAL TRUST CENTRAL INSTALLMENT CREDIT
AND SAVINGS ASSOCIATION, as CORPORATION, a California
Collateral Agent corporation
By:__________________________ By:_______________________
Its:_________________________ Its:______________________
Notice Address: Notice Address:
BANK OF AMERICA NATIONAL TRUST CENTRAL INSTALLMENT CREDIT
AND SAVINGS ASSOCIATION CORPORATION
Agency Management Services #5596 5480 East Ferguson Drive
1455 Market Street, 12th Floor Commerce, California 90022
San Francisco, CA 94103
Attn: Daniel G. Farthing, V.P. Attn: Gary Cypres
Telephone: (415) 436-3431 Telephone: (213) 748-9901
Facsimile: (415) 436-2700 Facsimile: (213) 747-5927
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<PAGE> 13
SCHEDULE A
TO
SECURITY AGREEMENT
PART A
Chief Executive Office
PART B
Inventory and Equipment Locations
PART C
Books and Records Locations
PART D
Trade Names
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<PAGE> 1
Exhibit 10.17
CENTRAL RAM, INC.
CONTINUING GUARANTY
TO: Bank of America National Trust
and Savings Association, as Agent ("Agent")
PRELIMINARY STATEMENTS:
A. Concurrently herewith, Central Installment Credit Corporation (the
"Borrower") and Banner's Central Electric, Inc. ("BCE"; collectively with the
Borrower, the "Obligors"), the Banks named therein (the "Banks") and Bank of
America National Trust and Savings Association, as agent (the "Agent"), are
entering into that Third Amended and Restated Loan Agreement dated as of June
24, 1996 (said agreement, as it may hereafter be amended, supplemented, restated
or otherwise modified from time to time, is referred to herein as the "Loan
Agreement"; capitalized terms used herein without definition shall have the
meanings assigned those terms in the Loan Agreement).
B. It is a condition precedent to the effectiveness of the Loan
Agreement that the undersigned ("Guarantor") enter into this Guaranty,
guarantying all obligations of every nature of Obligors from time to time owed
under or in respect of the Loan Agreement, the Loans, and the other Loan
Documents (all such obligations are referred to herein as the "Obligations").
NOW, THEREFORE, the Guarantor agrees as follows:
1. For valuable consideration, the Guarantor unconditionally,
absolutely and irrevocably guarantees and promises to pay to the Agent, or
order, on demand, in lawful money of the United States and in immediately
available funds, any and all present or future Obligations owing to the Agent
and the Banks (collectively the "Guarantied Parties" or individually a
"Guarantied Party"). The term Obligations is used herein in its most
comprehensive sense and includes any and all advances, debts, obligations, and
liabilities of the Obligors, now, or hereafter made, incurred, or created,
whether voluntary or involuntarily, and however arising, including, without
limitation, any and all attorneys' fees (including the allocated cost of
in-house counsel), costs, premiums, charges, or interest owed by the Obligors to
the Guarantied Parties, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, whether the Obligors may
be liable individually or jointly with others, whether recovery upon such
indebtedness may be or hereafter becomes barred by any statute of limitations or
whether such indebtedness may be or hereafter become otherwise unenforceable.
2. The liability of the Guarantor under this Guaranty
(exclusive of liability under any other guaranties executed by the Guarantor)
shall not exceed at any one time the full amount
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<PAGE> 2
of the Obligations. Any Guarantied Party may permit the indebtedness of the
Obligors to exceed the Guarantor's liability, and may apply any amounts received
from any source, other than from the Guarantor, to the unguaranteed portion of
the Obligors's indebtedness. This Guaranty is a continuing guaranty which
relates to any Obligations, including those which arise under successive
transactions which shall either cause the Obligors to incur new Obligations,
continue the Obligations from time to time, or renew them after they have been
satisfied. The Guarantor agrees that nothing shall discharge or satisfy its
obligations created hereunder except for the full payment of the Obligations.
Any payment by the Guarantor shall not reduce its maximum obligation hereunder,
unless written notice to that effect is actually received by the Agent at or
prior to the time of such payment.
3. The Guarantor agrees that it is directly and primarily liable to the
Agent for the benefit of the Guarantied Parties, that its obligations hereunder
are independent of the Obligations of the Obligors, or of any other guarantor,
and that a separate action or actions may be brought and prosecuted against the
Guarantor, whether action is brought against the Obligors or whether the
Obligors is joined in any such action or actions. The Guarantor agrees that any
releases which may be given by any Guarantied Party to the Obligors or any other
guarantor shall not release it from this Guaranty.
4. The obligations of the Guarantor under this Guaranty shall not be
affected, modified or impaired upon the occurrence from time to time of any of
the following, whether or not with notice to or the consent of the Guarantor:
(a) the compromise, settlement, change, modification, amendment
(whether material or otherwise) or partial termination of any or all of the
Obligations;
(b) the failure to give notice to the Guarantor of the occurrence of
any Event of Default under the terms and provisions of the Loan Agreement;
(c) the waiver of the payment, performance or observance of any of the
Obligations;
(d) the taking or omitting to take any actions referred to in any Loan
Document or of any action under this Guaranty;
(e) any failure, omission or delay on the part of any Guarantied Party
to enforce, assert or exercise any right, power or remedy conferred in this
Guaranty, the Loan Agreement, any other Loan Document or any other indulgence or
similar act on the part of any Guarantied Party in good faith and in compliance
with applicable law;
(f) the voluntary or involuntary liquidation, dissolution, sale or
other disposition of all or substantially all of the assets, marshalling of
assets, receivership, insolvency, bankruptcy, assignment for the benefit of
Creditors or readjustment of, or other similar
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<PAGE> 3
proceedings which affect the Guarantor, any other guarantor of any of the
Obligations of the Obligors or any of the assets of any of them, or any
allegation of invalidity or contest of the validity of this Guaranty in any such
proceeding;
(g) to the extent permitted by law, the release or discharge of any
other guarantors of the Obligations from the performance or observance of any
obligation, covenant or agreement contained in any guaranties of the Obligations
by operation of law; or
(h) the default or failure of any other guarantors of the Obligations
fully to perform any of their respective obligations set forth in any such
guaranties of the Obligations.
To the extent any of the foregoing refers to any actions which any
Guarantied Party may take, the Guarantor hereby agrees that any Guarantied Party
may take such actions in such manner, upon such terms, and at such times as that
Guarantied Party, in its discretion, deems advisable, without, in any way or
respect, impairing, affecting, reducing or releasing the Guarantor from its
undertakings hereunder and the Guarantor hereby consents to each and all of the
foregoing actions, events and occurrences.
5. The Guarantor hereby waives:
(a) any and all rights to require any Guarantied Party to prosecute or
seek to enforce any remedies against the Obligors or any other party liable to
any Guarantied Party on account of the Obligations;
(b) any right to assert against any Guarantied Party any defense (legal
or equitable), set-off, counterclaim, or claim which the Guarantor may now or at
any time hereafter have against the Obligors or any other party liable to any
Guarantied Party in any way or manner under the Loan Agreement;
(c) all defenses, counterclaims and off-sets of any kind or nature,
arising directly or indirectly from the present or future lack of perfection,
sufficiency, validity or enforceability of any Loan Document and the security
interest granted pursuant thereto;
(d) any defense arising by reason of any claim or defense based upon an
election of remedies by any Guarantied Party including, without limitation, any
direction to proceed by judicial or nonjudicial foreclosure or by deed in lieu
thereof, which, in any manner impairs, affects, reduces, releases, destroys or
extinguishes the Guarantor's subrogation rights, rights to proceed against the
Obligors for reimbursement, or any other rights of the Guarantor to proceed
against the Obligors, against any other guarantor, or against any other
security, with the Guarantor understanding that the exercise by any Guarantied
Party of certain rights and remedies may offset or eliminate the Guarantor's
right of subrogation against the Obligors, and that the Guarantor may therefore
incur partially or totally non-reimbursable liability hereunder;
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<PAGE> 4
(e) all presentments, demands for performance, notices of
non-performance, protests, notices of protest, notices of dishonor, notices of
default, notice of acceptance of this Guaranty, and notices of the existence,
creation, or incurring of new or additional indebtedness, and all other notices
or formalities to which the Guarantor may be entitled; and
(f) without limiting the generality of the foregoing, the Guarantor
hereby expressly waives any and all benefits of California Civil Code Sections
2809, 2810, 2819, 2825, 2839 and 2845 through 2850.
6. The Guarantor understands and acknowledges that if the Agent
forecloses, either by judicial foreclosure or by exercise of power of sale, any
deed of trust securing the indebtedness, that foreclosure could impair or
destroy any ability that the Guarantor may have to seek reimbursement,
contribution or indemnification from the Obligors or others based on any right
the Guarantor may have of subrogation, reimbursement, contribution or
indemnification for any amounts paid by the Guarantor under this Guaranty. The
Guarantor further understands and acknowledges that in the absence of this
paragraph, such potential impairment or destruction of the Guarantor's rights,
if any, may entitle the Guarantor to assert a defense to this Guaranty based on
Section 580d of the California Code of Civil Procedure as interpreted in Union
Bank v. Gradsky, 265 Cal. App. 2d. 40 (1968). By executing this Guaranty, the
Guarantor freely, irrevocably and unconditionally: (i) waives and relinquishes
that defense and agrees that the Guarantor will be fully liable under this
Guaranty even though the Agent may foreclose, either by judicial foreclosure or
by exercise of power of sale, any deed of trust securing the indebtedness; (ii)
agrees that the Guarantor will not assert that defense in any action or
proceeding which the Agent may commence to enforce this Guaranty; (iii)
acknowledges and agrees that the rights and defenses waived by the Guarantor in
this Guaranty include any right or defense that the Guarantor may have or be
entitled to assert based upon or arising out of any one or more of Sections
580a, 580b, 580d or 726 of the California Code of Civil Procedure or Section
2848 of the California Civil Code; and (iv) acknowledges and agrees that the
Guarantied Parties are relying on this waiver in creating the indebtedness, and
that this waiver is a material part of the consideration which the Guarantied
Parties are receiving for creating the indebtedness.
7. The Guarantor is presently informed of the financial condition of
the Obligors and of all other circumstances which a diligent inquiry would
reveal and which bear upon the risk of nonpayment of the Obligations. The
Guarantor hereby covenants that it will continue to keep itself informed of the
financial condition of the Obligors, the status of other guarantors, if any, and
of all other circumstances which bear upon the risk of nonpayment. The Guarantor
hereby waives its right, if any, to require any Guarantied Party to disclose to
it any information which any Guarantied Party may now or hereafter acquire
concerning such condition or circumstances including, but not limited to, the
release of any other guarantor.
8. The Agent and each Bank's books and records evidencing the
Obligations shall be admissible in any action or proceeding and shall be binding
upon the Guarantor for the purpose of establishing the terms set forth therein
and shall constitute prima facie proof thereof.
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<PAGE> 5
9. The Guarantor represents and warrants for and with respect to itself
that:
(a) The Guarantor is a corporation duly organized and existing under
the laws of the State of Delaware, and is properly licensed and in good standing
in, and where necessary to maintain its rights and privileges have complied with
the fictitious name statute of, every jurisdiction in which it is doing
business, except where the failure to be licensed or be in good standing or
comply with any such statute will not have a material adverse effect on the
ability of the Guarantor to perform its obligations hereunder or under any
instrument or agreement required hereunder;
(b) The execution, delivery and performance of this Guaranty and any
instrument or agreement required hereunder are within the power of the
Guarantor, have been duly authorized by, and are not in conflict with the terms
of any charter, by-law or other organization papers of, the Guarantor;
(c) No approval, consent, exemption or other action by, or notice to or
filing with, any governmental authority is necessary in connection with the
execution, delivery, performance or enforcement of this Guaranty or any
instrument or agreement required hereunder, except as may have been obtained and
certified copies of which have been delivered to the Guarantied Parties;
(d) There is no law, rule or regulation, nor is there any judgment,
decree or order of any court or governmental authority binding on the Guarantor,
which would be contravened by the execution, delivery, performance or
enforcement of this Guaranty or any instrument or agreement required hereunder;
(e) This Guaranty is a legal, valid and binding agreement of the
Guarantor, enforceable against the Guarantor in accordance with its terms, and
any instrument or agreement required hereunder, when executed and delivered,
will be similarly legal, valid, binding and enforceable, except where
enforceability thereof may be limited by applicable law relating to bankruptcy,
insolvency, moratorium or other similar laws affecting creditors' rights
generally or by the application of general principles of equity;
(f) There is no action, suit or proceeding pending against, or to the
knowledge of the Guarantor, threatened against or affecting the Guarantor,
before any court or arbitrator or any governmental body, agency or official
which in any manner draws into question the validity or enforceability of this
Guaranty; and
(g) The execution, delivery and performance by the Guarantor of this
Guaranty does not constitute, to the best knowledge of Guarantor, a "fraudulent
conveyance," "fraudulent obligation" or "fraudulent transfer" within the
meanings of the Uniform Fraudulent Conveyances Act or Uniform Fraudulent
Transfer Act, as enacted in any jurisdiction.
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<PAGE> 6
10. Any one of the following events shall constitute an "Event of
Bankruptcy:"
(a) The Guarantor or the Obligors is generally not paying or admits in
writing its inability to pay its debts as such debts become due, or files any
petition or action for relief under any bankruptcy, reorganization, insolvency,
or moratorium law or any other law for the relief of, or relating to, debtors,
now or hereafter in effect, or makes any assignment for the benefit of
creditors, or takes any corporate action in furtherance of any of the foregoing;
(b) An involuntary petition is filed against the Guarantor or the
Obligors under any bankruptcy statute now or hereafter in effect, or a
custodian, receiver, trustee, assignee for the benefit of creditors (or other
similar official) is appointed to take possession, custody or control of any
property of the Guarantor or the Obligors, unless such petition or appointment
is set aside or withdrawn or ceases to be in effect within sixty (60) days from
the date of said filing or appointment.
Upon the occurrence of an Event of Bankruptcy, without notice or demand, any and
all of the Guarantor's obligations under this Guaranty shall become due, payable
and enforceable against the Guarantor whether or not the Obligations are then
due and payable.
11. All notices and other communications hereunder shall be delivered,
in the manner and with the effect provided in the Loan Agreement and, in the
case of the Guarantor, in care of the Obligors.
12. This Guaranty shall be binding upon the successors and assigns of
the Guarantor and shall inure to the benefit of the Agent's and the Guarantied
Parties' successors and assigns. This Guaranty cannot be assigned by the
Guarantor without the prior written consent of the Guarantied Parties which
shall be in the Guarantied Parties' sole and absolute discretion.
13. No failure or delay by any Guarantied Party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
14. The Guarantor shall pay (a) all reasonable out-of-pocket expenses
of any Guarantied Party, including reasonable fees and disbursements of counsel
(including the allocated cost of in-house counsel and staff) for the Agent, in
connection with any waiver or consent hereunder or any amendment hereof and (b)
all out-of-pocket expenses incurred by the Guarantied Parties, including fees
and disbursements of counsel (including the allocated cost of in-house counsel
and staff), in connection with the enforcement of this Guaranty (whether or not
suit is brought).
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<PAGE> 7
15. No modification of this Guaranty shall be effective for any purpose
unless it is in writing and executed by an officer of the Agent authorized to do
so. This Guaranty merges all negotiations, stipulations and provisions relating
to the subject matter of this Guaranty which preceded or may accompany the
execution of this Guaranty.
16. This Guaranty and the rights and obligations of the parties
hereunder shall be construed in accordance with and be governed by the laws of
the State of California.
17. This Guaranty may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument.
18. Any indebtedness of the Obligors now or hereafter held by Guarantor
is hereby subordinated to the indebtedness of the Obligors to the Guarantied
Parties; and such indebtedness of the Obligors to the Guarantor if the Agent so
requests shall be collected, enforced and received by Guarantor as trustee for
the Guarantied Parties and be paid over to the Agent on account of the
indebtedness of the Obligors to the Guarantied Parties but without reducing or
affecting in any manner the liability of the Guarantor under the other
provisions of this Guaranty.
19. It is not necessary for the Guarantied Parties to inquire into the
powers of the Obligors or of the officers, directors or agents acting or
purporting to act on its behalf, and any indebtedness made or created in
reliance upon the professed exercise of such powers shall be guaranteed
hereunder.
20. Arbitration:
(a) This arbitration provision relates to and governs the resolution of
any controversies or claims between and among the Guarantor, the Obligors, the
Agent, the Collateral Agent, and the Banks (hereinafter in this provision
collectively referred to as the "Parties"), or any subset of them, that in any
way relate or pertain to the Loan Documents or the transactions or dealings
among the Parties with respect thereto, including but not limited to any
controversies or claims that arise from:
(i) This Guaranty (including any renewals, restatements,
amendments, supplements, extensions or modifications of this Guaranty) or
any other Loan Document;
(ii) Any document, agreement or procedure related to or delivered
in connection with this Guaranty or any other Loan Document;
(iii) Any breach or violation by any Party of this Guaranty or any
other Loan Document; or
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<PAGE> 8
(iv) Any claim for damages (whether in tort or contract) resulting
from any business conducted between the Parties or any subset of them that
in any way pertains to the Loan Documents or the transactions contemplated
thereby.
(b) At the request of any Party, any such controversies or claims will
be settled by arbitration in accordance with the United States Arbitration Act.
The United States Arbitration Act will apply even though this Guaranty provides
that it is governed by California law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration. The arbitration will be conducted within Los Angeles County,
California.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the equivalent of the
filing of a lawsuit, and any claim or controversy which may be arbitrated under
this paragraph is subject to any applicable statute of limitations. The
arbitrators will have the authority to decide whether any such claim or
controversy is barred by the statute of limitations and, if so, to dismiss the
arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
(g) The procedure described above in this Section will not apply if the
controversy or claim, at the time of the proposed submission to arbitration,
arises from or relates to an obligation owed to Collateral Agent, Agent, or any
Bank that is secured by real property located in California. In this case, all
affected Parties must consent to submission of the claim or controversy to
arbitration. If such affected Parties do not consent to arbitration, the
controversy or claim will be settled as follows:
(i) The affected Parties will designate a referee (or a panel of
referees) selected under the auspices of the American Arbitration
Association in the same manner as arbitrators are selected in
Association-sponsored proceedings;
(ii) The designated referee (or the panel of referees) will be
appointed by a court as provided in California Code of Civil Procedure
Section 638 and the following related sections;
(iii) The referee (or the presiding referee of the panel) will be
an active attorney or a retired judge; and
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<PAGE> 9
(iv) The award that results from the decision of the referee (or
the panel) will be entered as a judgment in the court that appointed the
referee, in accordance with the provisions of California Code of Civil
Procedure Sections 644 and 645.
(h) This provision does not limit the right of the Parties to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
(iii) act in a court of law, before, during or after the
arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not constitute a
waiver of the right of the Parties, including the suing party, to submit the
controversy or claim to arbitration if the other party contests the lawsuit.
However, if the controversy or claim arises from or relates to an obligation to
Collateral Agent, Agent, or any Bank which is secured by real property located
in California at the time of the proposed submission to arbitration, this right
is limited according to the provision above requiring the consent of all
affected Parties to seek resolution through arbitration.
(j) If the Collateral Agent, Agent or any Bank forecloses against any
real property securing any obligation contained in any Loan Document, such
foreclosing Party has the option to exercise the power of sale under the deed of
trust or mortgage, or to proceed by judicial foreclosure.
Executed as of the 24th day of June 1996.
CENTRAL RAM, INC.
By:______________________
Title:___________________
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<PAGE> 1
Exhibit 10.18
BANNER'S CENTRAL ELECTRIC, INC.
CONTINUING GUARANTY
TO: Bank of America National Trust
and Savings Association, as Agent ("Agent")
PRELIMINARY STATEMENTS:
A. Concurrently herewith, Central Installment Credit Corporation (the
"Borrower") and Banner's Central Electric, Inc. (the "Guarantor"), the Banks
named therein (the "Banks") and Bank of America National Trust and Savings
Association, as agent (the "Agent"), are entering into that Third Amended and
Restated Loan Agreement dated as of June 24, 1996 (said agreement, as it may
hereafter be amended, supplemented, restated or otherwise modified from time to
time, is referred to herein as the "Loan Agreement"; capitalized terms used
herein without definition shall have the meanings assigned those terms in the
Loan Agreement).
B. It is a condition precedent to the effectiveness of the Loan
Agreement that the Guarantor enter into this Guaranty, guarantying all
obligations of every nature of Borrower from time to time owed under or in
respect of the Loan Agreement, the Loans, and the other Loan Documents (all such
obligations are referred to herein as the "Obligations").
NOW, THEREFORE, the Guarantor agrees as follows:
1. For valuable consideration, the Guarantor unconditionally,
absolutely and irrevocably guarantees and promises to pay to the Agent, or
order, on demand, in lawful money of the United States and in immediately
available funds, any and all present or future Obligations owing to the Agent
and the Banks (collectively the "Guarantied Parties" or individually a
"Guarantied Party"). The term Obligations is used herein in its most
comprehensive sense and includes any and all advances, debts, obligations, and
liabilities of the Borrower, now, or hereafter made, incurred, or created,
whether voluntary or involuntarily, and however arising, including, without
limitation, any and all attorneys' fees (including the allocated cost of
in-house counsel), costs, premiums, charges, or interest owed by the Borrower to
the Guarantied Parties, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, whether the Borrower may
be liable individually or jointly with others, whether recovery upon such
indebtedness may be or hereafter becomes barred by any statute of limitations or
whether such indebtedness may be or hereafter become otherwise unenforceable.
2. The liability of the Guarantor under this Guaranty (exclusive of
liability under any other guaranties executed by the Guarantor) shall not exceed
at any one time the full amount of the Obligations. Any Guarantied Party may
permit the indebtedness of the Borrower to exceed
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<PAGE> 2
the Guarantor's liability, and may apply any amounts received from any source,
other than from the Guarantor, to the unguaranteed portion of the Borrower's
indebtedness. This Guaranty is a continuing guaranty which relates to any
Obligations, including those which arise under successive transactions which
shall either cause the Borrower to incur new Obligations, continue the
Obligations from time to time, or renew them after they have been satisfied. The
Guarantor agrees that nothing shall discharge or satisfy its obligations created
hereunder except for the full payment of the Obligations. Any payment by the
Guarantor shall not reduce its maximum obligation hereunder, unless written
notice to that effect is actually received by the Agent at or prior to the time
of such payment.
3. The Guarantor agrees that it is directly and primarily liable to the
Agent for the benefit of the Guarantied Parties, that its obligations hereunder
are independent of the Obligations of the Borrower, or of any other guarantor,
and that a separate action or actions may be brought and prosecuted against the
Guarantor, whether action is brought against the Borrower or whether the
Borrower is joined in any such action or actions. The Guarantor agrees that any
releases which may be given by any Guarantied Party to the Borrower or any other
guarantor shall not release it from this Guaranty.
4. The obligations of the Guarantor under this Guaranty shall not be
affected, modified or impaired upon the occurrence from time to time of any of
the following, whether or not with notice to or the consent of the Guarantor:
(a) the compromise, settlement, change, modification, amendment
(whether material or otherwise) or partial termination of any or all of the
Obligations;
(b) the failure to give notice to the Guarantor of the occurrence of
any Event of Default under the terms and provisions of the Loan Agreement;
(c) the waiver of the payment, performance or observance of any of the
Obligations;
(d) the taking or omitting to take any actions referred to in any Loan
Document or of any action under this Guaranty;
(e) any failure, omission or delay on the part of any Guarantied Party
to enforce, assert or exercise any right, power or remedy conferred in this
Guaranty, the Loan Agreement, any other Loan Document or any other indulgence or
similar act on the part of any Guarantied Party in good faith and in compliance
with applicable law;
(f) the voluntary or involuntary liquidation, dissolution, sale or
other disposition of all or substantially all of the assets, marshalling of
assets, receivership, insolvency, bankruptcy, assignment for the benefit of
Creditors or readjustment of, or other similar proceedings which affect the
Guarantor, any other guarantor of any of the Obligations of the
- 2. -
<PAGE> 3
Borrower or any of the assets of any of them, or any allegation of invalidity or
contest of the validity of this Guaranty in any such proceeding;
(g) to the extent permitted by law, the release or discharge of any
other guarantors of the Obligations from the performance or observance of any
obligation, covenant or agreement contained in any guaranties of the Obligations
by operation of law; or
(h) the default or failure of any other guarantors of the Obligations
fully to perform any of their respective obligations set forth in any such
guaranties of the Obligations.
To the extent any of the foregoing refers to any actions which any
Guarantied Party may take, the Guarantor hereby agrees that any Guarantied Party
may take such actions in such manner, upon such terms, and at such times as that
Guarantied Party, in its discretion, deems advisable, without, in any way or
respect, impairing, affecting, reducing or releasing the Guarantor from its
undertakings hereunder and the Guarantor hereby consents to each and all of the
foregoing actions, events and occurrences.
5. The Guarantor hereby waives:
(a) any and all rights to require any Guarantied Party to prosecute or
seek to enforce any remedies against the Borrower or any other party liable to
any Guarantied Party on account of the Obligations;
(b) any right to assert against any Guarantied Party any defense (legal
or equitable), set-off, counterclaim, or claim which the Guarantor may now or at
any time hereafter have against the Borrower or any other party liable to any
Guarantied Party in any way or manner under the Loan Agreement;
(c) all defenses, counterclaims and off-sets of any kind or nature,
arising directly or indirectly from the present or future lack of perfection,
sufficiency, validity or enforceability of any Loan Document and the security
interest granted pursuant thereto;
(d) any defense arising by reason of any claim or defense based upon an
election of remedies by any Guarantied Party including, without limitation, any
direction to proceed by judicial or nonjudicial foreclosure or by deed in lieu
thereof, which, in any manner impairs, affects, reduces, releases, destroys or
extinguishes the Guarantor's subrogation rights, rights to proceed against the
Borrower for reimbursement, or any other rights of the Guarantor to proceed
against the Borrower, against any other guarantor, or against any other
security, with the Guarantor understanding that the exercise by any Guarantied
Party of certain rights and remedies may offset or eliminate the Guarantor's
right of subrogation against the Borrower, and that the Guarantor may therefore
incur partially or totally non-reimbursable liability hereunder;
- 3. -
<PAGE> 4
(e) all presentments, demands for performance, notices of
non-performance, protests, notices of protest, notices of dishonor, notices of
default, notice of acceptance of this Guaranty, and notices of the existence,
creation, or incurring of new or additional indebtedness, and all other notices
or formalities to which the Guarantor may be entitled; and
(f) without limiting the generality of the foregoing, the Guarantor
hereby expressly waives any and all benefits of California Civil Code Sections
2809, 2810, 2819, 2825, 2839 and 2845 through 2850.
6. The Guarantor understands and acknowledges that if the Agent
forecloses, either by judicial foreclosure or by exercise of power of sale, any
deed of trust securing the indebtedness, that foreclosure could impair or
destroy any ability that the Guarantor may have to seek reimbursement,
contribution or indemnification from the Borrower or others based on any right
the Guarantor may have of subrogation, reimbursement, contribution or
indemnification for any amounts paid by the Guarantor under this Guaranty. The
Guarantor further understands and acknowledges that in the absence of this
paragraph, such potential impairment or destruction of the Guarantor's rights,
if any, may entitle the Guarantor to assert a defense to this Guaranty based on
Section 580d of the California Code of Civil Procedure as interpreted in Union
Bank v. Gradsky, 265 Cal. App. 2d. 40 (1968). By executing this Guaranty, the
Guarantor freely, irrevocably and unconditionally: (i) waives and relinquishes
that defense and agrees that the Guarantor will be fully liable under this
Guaranty even though the Agent may foreclose, either by judicial foreclosure or
by exercise of power of sale, any deed of trust securing the indebtedness; (ii)
agrees that the Guarantor will not assert that defense in any action or
proceeding which the Agent may commence to enforce this Guaranty; (iii)
acknowledges and agrees that the rights and defenses waived by the Guarantor in
this Guaranty include any right or defense that the Guarantor may have or be
entitled to assert based upon or arising out of any one or more of Sections
580a, 580b, 580d or 726 of the California Code of Civil Procedure or Section
2848 of the California Civil Code; and (iv) acknowledges and agrees that the
Guarantied Parties are relying on this waiver in creating the indebtedness, and
that this waiver is a material part of the consideration which the Guarantied
Parties are receiving for creating the indebtedness.
7. The Guarantor is presently informed of the financial condition of
the Borrower and of all other circumstances which a diligent inquiry would
reveal and which bear upon the risk of nonpayment of the Obligations. The
Guarantor hereby covenants that it will continue to keep itself informed of the
financial condition of the Borrower, the status of other guarantors, if any, and
of all other circumstances which bear upon the risk of nonpayment. The Guarantor
hereby waives its right, if any, to require any Guarantied Party to disclose to
it any information which any Guarantied Party may now or hereafter acquire
concerning such condition or circumstances including, but not limited to, the
release of any other guarantor.
8. The Agent and each Bank's books and records evidencing the
Obligations shall be admissible in any action or proceeding and shall be binding
upon the Guarantor for the purpose of establishing the terms set forth therein
and shall constitute prima facie proof thereof.
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<PAGE> 5
9. The Guarantor represents and warrants for and with respect to itself
that:
(a) The Guarantor is a corporation duly organized and existing under
the laws of the State of California, and is properly licensed and in good
standing in, and where necessary to maintain its rights and privileges have
complied with the fictitious name statute of, every jurisdiction in which it is
doing business, except where the failure to be licensed or be in good standing
or comply with any such statute will not have a material adverse effect on the
ability of the Guarantor to perform its obligations hereunder or under any
instrument or agreement required hereunder;
(b) The execution, delivery and performance of this Guaranty and any
instrument or agreement required hereunder are within the power of the
Guarantor, have been duly authorized by, and are not in conflict with the terms
of any charter, by-law or other organization papers of, the Guarantor;
(c) No approval, consent, exemption or other action by, or notice to or
filing with, any governmental authority is necessary in connection with the
execution, delivery, performance or enforcement of this Guaranty or any
instrument or agreement required hereunder, except as may have been obtained and
certified copies of which have been delivered to the Guarantied Parties;
(d) There is no law, rule or regulation, nor is there any judgment,
decree or order of any court or governmental authority binding on the Guarantor,
which would be contravened by the execution, delivery, performance or
enforcement of this Guaranty or any instrument or agreement required hereunder;
(e) This Guaranty is a legal, valid and binding agreement of the
Guarantor, enforceable against the Guarantor in accordance with its terms, and
any instrument or agreement required hereunder, when executed and delivered,
will be similarly legal, valid, binding and enforceable, except where
enforceability thereof may be limited by applicable law relating to bankruptcy,
insolvency, moratorium or other similar laws affecting creditors' rights
generally or by the application of general principles of equity;
(f) There is no action, suit or proceeding pending against, or to the
knowledge of the Guarantor, threatened against or affecting the Guarantor,
before any court or arbitrator or any governmental body, agency or official
which in any manner draws into question the validity or enforceability of this
Guaranty; and
(g) The execution, delivery and performance by the Guarantor of this
Guaranty does not constitute, to the best knowledge of Guarantor, a "fraudulent
conveyance," "fraudulent obligation" or "fraudulent transfer" within the
meanings of the Uniform Fraudulent Conveyances Act or Uniform Fraudulent
Transfer Act, as enacted in any jurisdiction.
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<PAGE> 6
10. Any one of the following events shall constitute an "Event of
Bankruptcy:"
(a) The Guarantor or the Borrower is generally not paying or admits in
writing its inability to pay its debts as such debts become due, or files any
petition or action for relief under any bankruptcy, reorganization, insolvency,
or moratorium law or any other law for the relief of, or relating to, debtors,
now or hereafter in effect, or makes any assignment for the benefit of
creditors, or takes any corporate action in furtherance of any of the foregoing;
(b) An involuntary petition is filed against the Guarantor or the
Borrower under any bankruptcy statute now or hereafter in effect, or a
custodian, receiver, trustee, assignee for the benefit of creditors (or other
similar official) is appointed to take possession, custody or control of any
property of the Guarantor or the Borrower, unless such petition or appointment
is set aside or withdrawn or ceases to be in effect within sixty (60) days from
the date of said filing or appointment.
Upon the occurrence of an Event of Bankruptcy, without notice or demand, any and
all of the Guarantor's obligations under this Guaranty shall become due, payable
and enforceable against the Guarantor whether or not the Obligations are then
due and payable.
11. All notices and other communications hereunder shall be delivered,
in the manner and with the effect provided in the Loan Agreement and, in the
case of the Guarantor, in care of the Borrower.
12. This Guaranty shall be binding upon the successors and assigns of
the Guarantor and shall inure to the benefit of the Agent's and the Guarantied
Parties' successors and assigns. This Guaranty cannot be assigned by the
Guarantor without the prior written consent of the Guarantied Parties which
shall be in the Guarantied Parties' sole and absolute discretion.
13. No failure or delay by any Guarantied Party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
14. The Guarantor shall pay (a) all reasonable out-of-pocket expenses
of any Guarantied Party, including reasonable fees and disbursements of counsel
(including the allocated cost of in-house counsel and staff) for the Agent, in
connection with any waiver or consent hereunder or any amendment hereof and (b)
all out-of-pocket expenses incurred by the Guarantied Parties, including fees
and disbursements of counsel (including the allocated cost of in-house counsel
and staff), in connection with the enforcement of this Guaranty (whether or not
suit is brought).
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<PAGE> 7
15. No modification of this Guaranty shall be effective for any purpose
unless it is in writing and executed by an officer of the Agent authorized to do
so. This Guaranty merges all negotiations, stipulations and provisions relating
to the subject matter of this Guaranty which preceded or may accompany the
execution of this Guaranty.
16. This Guaranty and the rights and obligations of the parties
hereunder shall be construed in accordance with and be governed by the laws of
the State of California.
17. This Guaranty may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument.
18. Any indebtedness of the Borrower now or hereafter held by Guarantor
is hereby subordinated to the indebtedness of the Borrower to the Guarantied
Parties; and such indebtedness of the Borrower to the Guarantor if the Agent so
requests shall be collected, enforced and received by Guarantor as trustee for
the Guarantied Parties and be paid over to the Agent on account of the
indebtedness of the Borrower to the Guarantied Parties but without reducing or
affecting in any manner the liability of the Guarantor under the other
provisions of this Guaranty.
19. It is not necessary for the Guarantied Parties to inquire into the
powers of the Borrower or of the officers, directors or agents acting or
purporting to act on its behalf, and any indebtedness made or created in
reliance upon the professed exercise of such powers shall be guaranteed
hereunder.
Executed as of the 24th day of June 1996.
BANNER'S CENTRAL ELECTRIC, INC.
By:________________________
Title:_____________________
- 7. -
<PAGE> 1
Exhibit 10.19
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
CONTINUING GUARANTY
TO: Bank of America National Trust
and Savings Association, as Agent ("Agent")
PRELIMINARY STATEMENTS:
A. Concurrently herewith, Central Installment Credit
Corporation (the "Borrower") and Banner's Central Electric, Inc. ("BCE";
collectively with the Borrower, the "Obligors"), the Banks named therein (the
"Banks") and Bank of America National Trust and Savings Association, as agent
(the "Agent"), are entering into that Third Amended and Restated Loan Agreement
dated as of June 24, 1996 (said agreement, as it may hereafter be amended,
supplemented, restated or otherwise modified from time to time, is referred to
herein as the "Loan Agreement"; capitalized terms used herein without definition
shall have the meanings assigned those terms in the Loan Agreement).
B. It is a condition precedent to the effectiveness of the
Loan Agreement that the undersigned ("Guarantor") enter into this Guaranty,
guarantying all obligations of every nature of Obligors from time to time owed
under or in respect of the Loan Agreement, the Loans, and the other Loan
Documents (all such obligations are referred to herein as the "Obligations").
NOW, THEREFORE, the Guarantor agrees as follows:
1. For valuable consideration, the Guarantor unconditionally,
absolutely and irrevocably guarantees and promises to pay to the Agent, or
order, on demand, in lawful money of the United States and in immediately
available funds, any and all present or future Obligations owing to the Agent
and the Banks (collectively the "Guarantied Parties" or individually a
"Guarantied Party"). The term Obligations is used herein in its most
comprehensive sense and includes any and all advances, debts, obligations, and
liabilities of the Obligors, now, or hereafter made, incurred, or created,
whether voluntary or involuntarily, and however arising, including, without
limitation, any and all attorneys' fees (including the allocated cost of
in-house counsel), costs, premiums, charges, or interest owed by the Obligors to
the Guarantied Parties, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, whether the Obligors may
be liable individually or jointly with others, whether recovery upon such
indebtedness may be or hereafter becomes barred by any statute of limitations or
whether such indebtedness may be or hereafter become otherwise unenforceable.
2. The liability of the Guarantor under this Guaranty
(exclusive of liability under any other guaranties executed by the Guarantor)
shall not exceed at any one time the full amount
- 1. -
<PAGE> 2
of the Obligations. Any Guarantied Party may permit the indebtedness of the
Obligors to exceed the Guarantor's liability, and may apply any amounts received
from any source, other than from the Guarantor, to the unguaranteed portion of
the Obligors's indebtedness. This Guaranty is a continuing guaranty which
relates to any Obligations, including those which arise under successive
transactions which shall either cause the Obligors to incur new Obligations,
continue the Obligations from time to time, or renew them after they have been
satisfied. The Guarantor agrees that nothing shall discharge or satisfy its
obligations created hereunder except for the full payment of the Obligations.
Any payment by the Guarantor shall not reduce its maximum obligation hereunder,
unless written notice to that effect is actually received by the Agent at or
prior to the time of such payment.
3. The Guarantor agrees that it is directly and primarily
liable to the Agent for the benefit of the Guarantied Parties, that its
obligations hereunder are independent of the Obligations of the Obligors, or of
any other guarantor, and that a separate action or actions may be brought and
prosecuted against the Guarantor, whether action is brought against the Obligors
or whether the Obligors is joined in any such action or actions. The Guarantor
agrees that any releases which may be given by any Guarantied Party to the
Obligors or any other guarantor shall not release it from this Guaranty.
4. The Guarantor agrees and covenants that it will not grant,
create, incur, assume, permit to exist, directly or indirectly, any Lien of any
kind on or with respect to any of its Assets, whether now owned or hereinafter
acquired, other than (a) a grant of a security interest in the capital stock of
its subsidiary known as Central Installment Credit Corporation, a California
corporation, to Agent for the benefit of Agent and the Banks, and (b) the grant
of a security interest in the capital stock of its other subsidiaries to support
credit extended by banks or other financial institutions to such other
subsidiaries.
- 2. -
<PAGE> 3
5. The obligations of the Guarantor under this Guaranty shall
not be affected, modified or impaired upon the occurrence from time to time of
any of the following, whether or not with notice to or the consent of the
Guarantor:
(a) the compromise, settlement, change, modification,
amendment (whether material or otherwise) or partial termination of any or all
of the Obligations;
(b) the failure to give notice to the Guarantor of the
occurrence of any Event of Default under the terms and provisions of the Loan
Agreement;
(c) the waiver of the payment, performance or observance of
any of the Obligations;
(d) the taking or omitting to take any actions referred to in
any Loan Document or of any action under this Guaranty;
(e) any failure, omission or delay on the part of any
Guarantied Party to enforce, assert or exercise any right, power or remedy
conferred in this Guaranty, the Loan Agreement, any other Loan Document or any
other indulgence or similar act on the part of any Guarantied Party in good
faith and in compliance with applicable law;
(f) the voluntary or involuntary liquidation, dissolution,
sale or other disposition of all or substantially all of the assets, marshalling
of assets, receivership, insolvency, bankruptcy, assignment for the benefit of
Creditors or readjustment of, or other similar proceedings which affect the
Guarantor, any other guarantor of any of the Obligations of the Obligors or any
of the assets of any of them, or any allegation of invalidity or contest of the
validity of this Guaranty in any such proceeding;
(g) to the extent permitted by law, the release or discharge
of any other guarantors of the Obligations from the performance or observance of
any obligation, covenant or agreement contained in any guaranties of the
Obligations by operation of law; or
(h) the default or failure of any other guarantors of the
Obligations fully to perform any of their respective obligations set forth in
any such guaranties of the Obligations.
To the extent any of the foregoing refers to any actions which any
Guarantied Party may take, the Guarantor hereby agrees that any Guarantied Party
may take such actions in such manner, upon such terms, and at such times as that
Guarantied Party, in its discretion, deems advisable, without, in any way or
respect, impairing, affecting, reducing or releasing the Guarantor from its
undertakings hereunder and the Guarantor hereby consents to each and all of the
foregoing actions, events and occurrences.
6. The Guarantor hereby waives:
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<PAGE> 4
(a) any and all rights to require any Guarantied Party to
prosecute or seek to enforce any remedies against the Obligors or any other
party liable to any Guarantied Party on account of the Obligations;
(b) any right to assert against any Guarantied Party any
defense (legal or equitable), set-off, counterclaim, or claim which the
Guarantor may now or at any time hereafter have against the Obligors or any
other party liable to any Guarantied Party in any way or manner under the Loan
Agreement;
(c) all defenses, counterclaims and off-sets of any kind or
nature, arising directly or indirectly from the present or future lack of
perfection, sufficiency, validity or enforceability of any Loan Document and the
security interest granted pursuant thereto;
(d) any defense arising by reason of any claim or defense
based upon an election of remedies by any Guarantied Party including, without
limitation, any direction to proceed by judicial or nonjudicial foreclosure or
by deed in lieu thereof, which, in any manner impairs, affects, reduces,
releases, destroys or extinguishes the Guarantor's subrogation rights, rights to
proceed against the Obligors for reimbursement, or any other rights of the
Guarantor to proceed against the Obligors, against any other guarantor, or
against any other security, with the Guarantor understanding that the exercise
by any Guarantied Party of certain rights and remedies may offset or eliminate
the Guarantor's right of subrogation against the Obligors, and that the
Guarantor may therefore incur partially or totally non-reimbursable liability
hereunder;
(e) all presentments, demands for performance, notices of
non-performance, protests, notices of protest, notices of dishonor, notices of
default, notice of acceptance of this Guaranty, and notices of the existence,
creation, or incurring of new or additional indebtedness, and all other notices
or formalities to which the Guarantor may be entitled; and
(f) without limiting the generality of the foregoing, the
Guarantor hereby expressly waives any and all benefits of California Civil Code
Sections 2809, 2810, 2819, 2825, 2839 and 2845 through 2850.
7. The Guarantor understands and acknowledges that if the
Agent forecloses, either by judicial foreclosure or by exercise of power of
sale, any deed of trust securing the indebtedness, that foreclosure could impair
or destroy any ability that the Guarantor may have to seek reimbursement,
contribution or indemnification from the Obligors or others based on any right
the Guarantor may have of subrogation, reimbursement, contribution or
indemnification for any amounts paid by the Guarantor under this Guaranty. The
Guarantor further understands and acknowledges that in the absence of this
paragraph, such potential impairment or destruction of the Guarantor's rights,
if any, may entitle the Guarantor to assert a defense to this Guaranty based on
Section 580d of the California Code of Civil Procedure as interpreted in Union
Bank v. Gradsky, 265 Cal. App. 2d. 40 (1968). By executing this Guaranty, the
Guarantor freely, irrevocably and unconditionally: (i) waives and relinquishes
that defense and agrees that the
- 4. -
<PAGE> 5
Guarantor will be fully liable under this Guaranty even though the Agent may
foreclose, either by judicial foreclosure or by exercise of power of sale, any
deed of trust securing the indebtedness; (ii) agrees that the Guarantor will not
assert that defense in any action or proceeding which the Agent may commence to
enforce this Guaranty; (iii) acknowledges and agrees that the rights and
defenses waived by the Guarantor in this Guaranty include any right or defense
that the Guarantor may have or be entitled to assert based upon or arising out
of any one or more of Sections 580a, 580b, 580d or 726 of the California Code of
Civil Procedure or Section 2848 of the California Civil Code; and (iv)
acknowledges and agrees that the Guarantied Parties are relying on this waiver
in creating the indebtedness, and that this waiver is a material part of the
consideration which the Guarantied Parties are receiving for creating the
indebtedness.
8. The Guarantor is presently informed of the financial
condition of the Obligors and of all other circumstances which a diligent
inquiry would reveal and which bear upon the risk of nonpayment of the
Obligations. The Guarantor hereby covenants that it will continue to keep itself
informed of the financial condition of the Obligors, the status of other
guarantors, if any, and of all other circumstances which bear upon the risk of
nonpayment. The Guarantor hereby waives its right, if any, to require any
Guarantied Party to disclose to it any information which any Guarantied Party
may now or hereafter acquire concerning such condition or circumstances
including, but not limited to, the release of any other guarantor.
9. The Agent and each Bank's books and records evidencing the
Obligations shall be admissible in any action or proceeding and shall be binding
upon the Guarantor for the purpose of establishing the terms set forth therein
and shall constitute prima facie proof thereof.
10. The Guarantor represents and warrants for and with respect
to itself that:
(a) The Guarantor is a corporation duly organized and existing
under the laws of the State of Delaware, and is properly licensed and in good
standing in, and where necessary to maintain its rights and privileges have
complied with the fictitious name statute of, every jurisdiction in which it is
doing business, except where the failure to be licensed or be in good standing
or comply with any such statute will not have a material adverse effect on the
ability of the Guarantor to perform its obligations hereunder or under any
instrument or agreement required hereunder;
(b) The execution, delivery and performance of this Guaranty
and any instrument or agreement required hereunder are within the power of the
Guarantor, have been duly authorized by, and are not in conflict with the terms
of any charter, by-law or other organization papers of, the Guarantor;
(c) No approval, consent, exemption or other action by, or
notice to or filing with, any governmental authority is necessary in connection
with the execution, delivery, performance or enforcement of this Guaranty or any
instrument or agreement required hereunder, except as
- 5. -
<PAGE> 6
may have been obtained and certified copies of which have been delivered to the
Guarantied Parties;
(d) There is no law, rule or regulation, nor is there any
judgment, decree or order of any court or governmental authority binding on the
Guarantor, which would be contravened by the execution, delivery, performance or
enforcement of this Guaranty or any instrument or agreement required hereunder;
(e) This Guaranty is a legal, valid and binding agreement of
the Guarantor, enforceable against the Guarantor in accordance with its terms,
and any instrument or agreement required hereunder, when executed and delivered,
will be similarly legal, valid, binding and enforceable, except where
enforceability thereof may be limited by applicable law relating to bankruptcy,
insolvency, moratorium or other similar laws affecting creditors' rights
generally or by the application of general principles of equity;
(f) There is no action, suit or proceeding pending against, or
to the knowledge of the Guarantor, threatened against or affecting the
Guarantor, before any court or arbitrator or any governmental body, agency or
official which in any manner draws into question the validity or enforceability
of this Guaranty; and
(g) The execution, delivery and performance by the Guarantor
of this Guaranty does not constitute, to the best knowledge of Guarantor, a
"fraudulent conveyance," "fraudulent obligation" or "fraudulent transfer" within
the meanings of the Uniform Fraudulent Conveyances Act or Uniform Fraudulent
Transfer Act, as enacted in any jurisdiction.
11. Any one of the following events shall constitute an "Event
of Bankruptcy:"
(a) The Guarantor or the Obligors is generally not paying or
admits in writing its inability to pay its debts as such debts become due, or
files any petition or action for relief under any bankruptcy, reorganization,
insolvency, or moratorium law or any other law for the relief of, or relating
to, debtors, now or hereafter in effect, or makes any assignment for the benefit
of creditors, or takes any corporate action in furtherance of any of the
foregoing;
(b) An involuntary petition is filed against the Guarantor or
the Obligors under any bankruptcy statute now or hereafter in effect, or a
custodian, receiver, trustee, assignee for the benefit of creditors (or other
similar official) is appointed to take possession, custody or control of any
property of the Guarantor or the Obligors, unless such petition or appointment
is set aside or withdrawn or ceases to be in effect within sixty (60) days from
the date of said filing or appointment.
Upon the occurrence of an Event of Bankruptcy, without notice
or demand, any and all of the Guarantor's obligations under this Guaranty shall
become due, payable and enforceable against the Guarantor whether or not the
Obligations are then due and payable.
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<PAGE> 7
12. All notices and other communications hereunder shall be
delivered, in the manner and with the effect provided in the Loan Agreement and,
in the case of the Guarantor, in care of the Obligors.
13. This Guaranty shall be binding upon the successors and
assigns of the Guarantor and shall inure to the benefit of the Agent's and the
Guarantied Parties' successors and assigns. This Guaranty cannot be assigned by
the Guarantor without the prior written consent of the Guarantied Parties which
shall be in the Guarantied Parties' sole and absolute discretion.
14. No failure or delay by any Guarantied Party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
15. The Guarantor shall pay (a) all reasonable out-of-pocket
expenses of any Guarantied Party, including reasonable fees and disbursements of
counsel (including the allocated cost of in-house counsel and staff) for the
Agent, in connection with any waiver or consent hereunder or any amendment
hereof and (b) all out-of-pocket expenses incurred by the Guarantied Parties,
including fees and disbursements of counsel (including the allocated cost of
in-house counsel and staff), in connection with the enforcement of this Guaranty
(whether or not suit is brought).
16. No modification of this Guaranty shall be effective for
any purpose unless it is in writing and executed by an officer of the Agent
authorized to do so. This Guaranty merges all negotiations, stipulations and
provisions relating to the subject matter of this Guaranty which preceded or may
accompany the execution of this Guaranty.
17. This Guaranty and the rights and obligations of the
parties hereunder shall be construed in accordance with and be governed by the
laws of the State of California.
18. This Guaranty may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
19. Any indebtedness of the Obligors now or hereafter held by
Guarantor is hereby subordinated to the indebtedness of the Obligors to the
Guarantied Parties; and such indebtedness of the Obligors to the Guarantor if
the Agent so requests shall be collected, enforced and received by Guarantor as
trustee for the Guarantied Parties and be paid over to the Agent on account of
the indebtedness of the Obligors to the Guarantied Parties but without reducing
or affecting in any manner the liability of the Guarantor under the other
provisions of this Guaranty.
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<PAGE> 8
20. It is not necessary for the Guarantied Parties to inquire
into the powers of the Obligors or of the officers, directors or agents acting
or purporting to act on its behalf, and any indebtedness made or created in
reliance upon the professed exercise of such powers shall be guaranteed
hereunder.
21. Arbitration:
(a) This arbitration provision relates to and governs the
resolution of any controversies or claims between and among the Guarantor, the
Obligors, the Agent, the Collateral Agent, and the Banks (hereinafter in this
provision collectively referred to as the "Parties"), or any subset of them,
that in any way relate or pertain to the Loan Documents or the transactions or
dealings among the Parties with respect thereto, including but not limited to
any controversies or claims that arise from:
(i) This Guaranty (including any renewals,
restatements, amendments, supplements, extensions or
modifications of this Guaranty) or any other Loan Document;
(ii) Any document, agreement or procedure related to
or delivered in connection with this Guaranty or any other
Loan Document;
(iii) Any breach or violation by any Party of this
Guaranty or any other Loan Document; or
(iv) Any claim for damages (whether in tort or
contract) resulting from any business conducted between the
Parties or any subset of them that in any way pertains to the
Loan Documents or the transactions contemplated thereby.
(b) At the request of any Party, any such controversies or
claims will be settled by arbitration in accordance with the United States
Arbitration Act. The United States Arbitration Act will apply even though this
Guaranty provides that it is governed by California law.
(c) Arbitration proceedings will be administered by the
American Arbitration Association and will be subject to its commercial rules of
arbitration. The arbitration will be conducted within Los Angeles County,
California.
(d) For purposes of the application of the statute of
limitations, the filing of an arbitration pursuant to this paragraph is the
equivalent of the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether any such
claim or controversy is barred by the statute of limitations and, if so, to
dismiss the arbitration on that basis.
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<PAGE> 9
(e) If there is a dispute as to whether an issue is
arbitrable, the arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding
may be submitted to any authorized court of law to be confirmed and enforced.
(g) The procedure described above in this Section will not
apply if the controversy or claim, at the time of the proposed submission to
arbitration, arises from or relates to an obligation owed to Collateral Agent,
Agent, or any Bank that is secured by real property located in California. In
this case, all affected Parties must consent to submission of the claim or
controversy to arbitration. If such affected Parties do not consent to
arbitration, the controversy or claim will be settled as follows:
(i) The affected Parties will designate a referee (or
a panel of referees) selected under the auspices of the
American Arbitration Association in the same manner as
arbitrators are selected in Association-sponsored proceedings;
(ii) The designated referee (or the panel of
referees) will be appointed by a court as provided in
California Code of Civil Procedure Section 638 and the
following related sections;
(iii) The referee (or the presiding referee of the
panel) will be an active attorney or a retired judge; and
(iv) The award that results from the decision of the
referee (or the panel) will be entered as a judgment in the
court that appointed the referee, in accordance with the
provisions of California Code of Civil Procedure Sections 644
and 645.
(h) This provision does not limit the right of the Parties to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal
property collateral; or
(iii) act in a court of law, before, during or after
the arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim,
additional or supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right
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<PAGE> 10
of the Parties, including the suing party, to submit the controversy or claim to
arbitration if the other party contests the lawsuit. However, if the controversy
or claim arises from or relates to an obligation to Collateral Agent, Agent, or
any Bank which is secured by real property located in California at the time of
the proposed submission to arbitration, this right is limited according to the
provision above requiring the consent of all affected Parties to seek resolution
through arbitration.
(j) If the Collateral Agent, Agent or any Bank forecloses
against any real property securing any obligation contained in any Loan
Document, such foreclosing Party has the option to exercise the power of sale
under the deed of trust or mortgage, or to proceed by judicial foreclosure.
Executed as of the 24th day of June 1996.
CENTRAL FINANCIAL ACCEPTANCE
CORPORATION
By:____________________________
Title:_________________________
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<PAGE> 1
Exhibit 10.20
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Agreement"), dated as of
June 24, 1996, is entered into between CENTRAL FINANCIAL ACCEPTANCE CORPORATION,
a Delaware corporation ("Pledgor"), and BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION as collateral agent under the belowdefined Intercreditor
Agreement ("Secured Party"), with reference to the following:
WHEREAS, Pledgor beneficially owns: (i) ___________ (___)
shares of the common stock of Central Installment Credit Corporation, a
California corporation ("Borrower");
WHEREAS, Borrower, Banners Central Electric, Inc., a
California corporation ("BCE"), and Secured Party are parties to that certain
Third Amended and Restated Loan Agreement (the "Loan Agreement"), of even date
herewith, pursuant to which Secured Party has agreed to make certain financial
accommodations to Borrower;
WHEREAS, to induce Secured Party to make the financial
accommodations provided to Borrower pursuant to the Loan Agreement, Pledgor
desires to pledge, grant, transfer, and assign to Secured Party a security
interest in the Collateral (as hereinafter defined) to secure the Secured
Obligations (as hereinafter defined), as provided herein.
NOW, THEREFORE, in consideration of the mutual promises,
covenants, representations, and warranties set forth herein and for other good
and valuable consideration, the parties hereto agree as follows:
1. Definitions and Construction.
(a) Definitions. All initially capitalized terms used
herein and not otherwise defined herein shall have the meaning ascribed thereto
in the Loan Agreement. As used in this Agreement:
"Agreement" shall have the meaning ascribed thereto
in the preamble hereto.
"BCE" shall have the meaning ascribed thereto in the
recitals to this Agreement.
"Borrower" shall have the meaning ascribed thereto in
the recitals to this Agreement.
<PAGE> 2
"Chief Executive Office" shall mean where Pledgor is
deemed located pursuant to Section9-103(3)(d) of the Code.
"Collateral" shall mean the Pledged Shares, the
Future Rights, and the Proceeds, collectively.
"Future Rights" shall mean: (a) to the extent of
Pledgor's interest therein, all shares of stock (other than Pledged Shares) of
the Issuers, and all securities convertible or exchangeable into, and all
warrants, options, or other rights to purchase, shares of stock of the Issuers;
(b) to the extent of Pledgor's interest therein, all shares of, all securities
convertible or exchangeable into, and all warrants, options, or other rights to
purchase shares of stock of any Person in which Pledgor, after the date of this
Agreement, acquires a direct equity interest, irrespective of whether such
Person is or becomes a Subsidiary of Pledgor; and (c) the certificates or
instruments representing such additional shares, convertible or exchangeable
securities, warrants, and other rights and all dividends, cash, options,
warrants, rights, instruments, and other property or proceeds from time to time
received, receivable, or otherwise distributed in respect of or in exchange for
any or all of such shares.
"Guaranty" shall mean that certain Continuing
Guaranty, of even date herewith, executed and delivered by Pledgor with respect
to the current and future obligations of Borrower and BCE owing to Secured
Party, as such guaranty may be modified, extended, supplemented, restated,
amended, or otherwise changed from time to time.
"Holder" and "Holders" shall have the meanings ascribed
thereto in Section 3 of this Agreement.
"Intercreditor Agreement" shall mean the Second Amended and
Restated Collateral Agency Intercreditor Agreement, of even date herewith,
between Secured Party, Sanwa Bank of California, and Sumitomo Bank of
California.
"Issuers" shall mean Borrower, and any other Person identified
as an Issuer on Schedule A attached hereto (or any addendum thereto), and any
successors thereto, whether by merger or otherwise.
"Lien" shall mean any lien, mortgage, pledge, assignment
(including any assignment of rights to receive payments of money), security
interest, charge, or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, or any
agreement to give any security interest).
"Loan Agreement" shall have the meaning ascribed thereto in
the recitals to this Agreement.
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<PAGE> 3
"Pledged Shares" shall mean all of the shares described in the
recitals to this Agreement and any other shares identified as Pledged Shares on
Schedule A attached hereto (or any addendum thereto).
"Pledgor" shall have the meaning ascribed thereto in the
preamble to this Agreement.
"Proceeds" shall mean all proceeds (including proceeds of
proceeds) of the Pledged Shares and Future Rights including all: (a) rights,
benefits, distributions, premiums, profits, dividends, interest, cash,
instruments, documents of title, accounts, contract rights, inventory,
equipment, general intangibles, deposit accounts, chattel paper, and other
property from time to time received, receivable, or otherwise distributed in
respect of or in exchange for, or as a replacement of or a substitution for, any
of the Pledged Shares, Future Rights, or proceeds thereof (including any cash,
stock, or other securities or instruments issued after any recapitalization,
readjustment, reclassification, merger or consolidation with respect to the
Issuers and any claims against financial intermediaries under Section8-313(2) of
the Code or otherwise); (b) "proceeds," as such term is used in Section9-306 of
the Code; (c) proceeds of any insurance, indemnity, warranty, or guaranty
(including guaranties of delivery) payable from time to time with respect to any
of the Pledged Shares, Future Rights, or proceeds thereof; (d) payments (in any
form whatsoever) made or due and payable to Pledgor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Pledged Shares, Future Rights, or proceeds
thereof; and (e) other amounts from time to time paid or payable under or in
connection with any of the Pledged Shares, Future Rights, or proceeds thereof.
"Secured Obligations" shall mean all liabilities, obligations,
or undertakings owing by Pledgor to Secured Party of any kind or description
arising out of or outstanding under, advanced or issued pursuant to, or
evidenced by the Guaranty, this Agreement, or any other Loan Document,
irrespective of whether for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, voluntary or involuntary, whether
now existing or hereafter arising, and including all interest (including
interest that accrues after the filing of a case under the Bankruptcy Code) and
any and all costs, fees (including attorneys fees), and expenses which Pledgor
is required to pay pursuant to any of the foregoing, by law, or otherwise.
"Secured Party" shall have the meaning ascribed thereto in the
preamble to this Agreement, together with its successors or assigns.
"Securities Act" shall have the meaning ascribed thereto in
Section 9(c) of this Agreement.
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<PAGE> 4
(b) Construction.
(i) Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular and to the singular
include the plural, the part includes the whole, the term "including" is not
limiting, and the term or has, except where otherwise indicated, the inclusive
meaning represented by the phrase "and/or." The words
"hereof,""herein,""hereby," "hereunder," and other similar terms in this
Agreement refer to this Agreement as a whole and not exclusively to any
particular provision of this Agreement. Article, section, subsection, exhibit,
and schedule references are to this Agreement unless otherwise specified. All of
the exhibits or schedules attached to this Agreement shall be deemed
incorporated herein by reference. Any reference to any of the following
documents includes any and all alterations, amendments, restatements,
extensions, modifications, renewals, or supplements thereto or thereof, as
applicable: this Agreement, the Loan Agreement, the Guaranty, or any of the
other Loan Documents.
(ii) Neither this Agreement nor any uncertainty or ambiguity
herein shall be construed or resolved against Secured Party or Pledgor, whether
under any rule of construction or otherwise. On the contrary, this Agreement has
been reviewed by both of the parties and their respective counsel and shall be
construed and interpreted according to the ordinary meaning of the words used so
as to fairly accomplish the purposes and intentions of the parties hereto.
(iii) In the event of any direct conflict between the express
terms and provisions of this Agreement and of the Loan Agreement, the terms and
provisions of the Loan Agreement shall control.
1. Pledge. As security for the prompt payment and performance of
the Secured Obligations in full by Borrower when due, whether at stated
maturity, by acceleration or otherwise (including amounts that would become due
but for the operation of the provisions of the Bankruptcy Code), Pledgor hereby
pledges, grants, transfers, and assigns to Secured Party a security interest in
all of Pledgor's right, title, and interest in and to the Collateral.
2. Delivery and Registration of Collateral.
(a) All certificates or instruments representing or evidencing
the Collateral immediately shall be delivered by Pledgor to
Secured Party or Secured Party's designee pursuant hereto at a
location designated by Secured Party and shall be held by or
on behalf of Secured Party pursuant hereto, and shall be in
suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to
Secured Party.
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<PAGE> 5
(b) After the occurrence and during the continuance of an
Event of Default, Secured Party shall have the right, at any time in its
discretion and without notice to Pledgor, to transfer to or to register on the
books of the Issuers (or of any other Person maintaining records with respect to
the Collateral) in the name of Secured Party or any of its nominees any or all
of the Collateral. In addition, Secured Party shall have the right at any time
to exchange certificates or instruments representing or evidencing Collateral
for certificates or instruments of smaller or larger denominations.
(c) If, at any time and from time to time, any Collateral
(including any certificate or instrument representing or evidencing any
Collateral) is in the possession of a Person other than Secured Party or Pledgor
(a "Holder"), then Pledgor shall immediately, at Secured Party's option, either
cause such Collateral to be delivered into Secured Party's possession, or
execute and deliver to such Holder a written notification/instruction, and take
all other steps necessary to perfect the security interest of Secured Party in
such Collateral, including obtaining from such Holder a written acknowledgement
that such Holder holds such Collateral for Secured Party, all pursuant to
SectionSection8-313 and 8-321 of the Code or other applicable law governing the
perfection of Secured Party's security interest in the Collateral in the
possession of such Holder. Each such notification/instruction and
acknowledgement shall be in form and substance satisfactory to Secured Party.
(d) Any and all Collateral (including dividends, interest, and
other cash distributions) at any time received or held by Pledgor shall be so
received or held in trust for Secured Party, shall be segregated from other
funds and property of Pledgor and shall be forthwith delivered to Secured Party
in the same form as so received or held, with any necessary endorsements.
(e) If at any time and from time to time any Collateral
consists of an uncertificated security or a security in book entry form, then
Pledgor shall immediately cause such Collateral to be registered or entered, as
the case may be, in the name of Secured Party, or otherwise cause Secured
Party's security interest thereon to be perfected in accordance with applicable
law.
3. Voting Rights and Dividends.
(a) So long as no Event of Default shall have occurred and be
continuing and so long as Secured Party has not given notice to Pledgor of its
exercise of its rights under this Section 4, Pledgor shall be entitled to
exercise any and all voting and other consensual rights pertaining to the
Collateral or any part thereof for any purpose not inconsistent with the terms
of the Loan Documents.
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<PAGE> 6
(b) Upon the occurrence and during the continuance of an Event
of Default and following the giving of notice by Secured Party to Pledgor of the
exercise of its rights under this Section 4, all rights of Pledgor to exercise
the voting and other consensual rights shall cease, and all such rights shall
thereupon become vested in Secured Party, who shall thereupon have the sole
right to exercise such voting or other consensual rights. Pledgor shall execute
and deliver (or cause to be executed and delivered) to Secured Party all such
proxies and other instruments as Secured Party may reasonably request for the
purpose of enabling Secured Party to exercise the voting and other rights which
it is entitled to exercise and to receive the dividends and distributions that
it is entitled to receive and retain pursuant to the preceding sentence.
4. Representations and Warranties. Pledgor represents,
warrants, and covenants as follows:
(a) Pledgor has taken all steps it deems necessary or
appropriate to be informed on a continuing basis of changes or potential changes
affecting the Collateral (including rights of conversion and exchange, rights to
subscribe, payment of dividends, reorganizations or recapitalization, tender
offers and voting rights), and Pledgor agrees that Secured Party shall have no
responsibility or liability for informing Pledgor of any such changes or
potential changes or for taking any action or omitting to take any action with
respect thereto;
(b) All information herein or hereafter supplied to Secured
Party by or on behalf of Pledgor in writing with respect to the Collateral is,
or in the case of information hereafter supplied will be, accurate and complete
in all material respects;
(c) Pledgor is and will be the sole legal and beneficial owner
of the Collateral (including the Pledged Shares and all other Collateral
acquired by Pledgor after the date hereof) free and clear of any adverse claim,
Lien, or other right, title, or interest of any party;
(d) This Agreement, and the delivery to Secured Party of the
Pledged Shares representing Collateral (or the delivery to all Holders of the
Pledged Shares representing Collateral of the notification/instruction referred
to in Section 3 of this Agreement), creates a valid, perfected, and first
priority security interest in one hundred percent (100%) of the Pledged Shares
in favor of Secured Party securing payment of the Secured Obligations, and all
actions necessary to achieve such perfection have been duly taken;
(e) Schedule A to this Agreement is true and correct and
complete in all material respects; without limiting the generality of the
foregoing: (i) all the Pledged Shares are in certificated form, and, except to
the extent registered in the name of Secured Party or its nominee pursuant to
the provisions of this Agreement, are registered in the name of Pledgor; and
(ii) the Pledged Shares as to each of the Issuers constitute at least the
percentage of all the fully
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<PAGE> 7
diluted issued and outstanding shares of stock of such Issuer as set forth in
Schedule A to this Agreement;
(f) There are no presently existing Future Rights or Proceeds
owned by Pledgor, except as set forth in Schedule C hereto;
(g) The Pledged Shares have been duly authorized and validly
issued and are fully paid and nonassessable; and
(h) Neither the pledge of the Collateral pursuant to this
Agreement nor the extensions of credit represented by the Secured Obligations
violates Regulation G, T, U or X of the Board of Governors of the Federal
Reserve System.
5. Further Assurances.
(a) Pledgor agrees that from time to time, at the expense of
Pledgor, Pledgor will promptly execute and deliver all further instruments and
documents, and take all further action that may be necessary or reasonably
desirable, or that Secured Party may request, in order to perfect and protect
any security interest granted or purported to be granted hereby or to enable
Secured Party to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing,
Pledgor will: (i) at the request of Secured Party, mark conspicuously each of
its records pertaining to the Collateral with a legend, in form and substance
reasonably satisfactory to Secured Party, indicating that such Collateral is
subject to the security interest granted hereby; (ii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or reasonably desirable, or as
Secured Party may request, in order to perfect and preserve the security
interests granted or purported to be granted hereby; (iii) allow inspection of
the Collateral by Secured Party or Persons designated by Secured Party; and (iv)
appear in and defend any action or proceeding that may affect Pledgor's title to
or Secured Party's security interest in the Collateral.
(b) Pledgor hereby authorizes Secured Party to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of Pledgor where
permitted by law. A carbon, photographic, or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law.
(c) Pledgor will furnish to Secured Party, upon the request of
Secured Party: (i) a certificate executed by an authorized officer of Pledgor,
and dated as of the date of delivery to Secured Party, itemizing in such detail
as Secured Party may request, the Collateral which, as of the date of such
certificate, has been delivered to Secured Party by Pledgor pursuant
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<PAGE> 8
to the provisions of this Agreement; and (ii) such statements and schedules
further identifying and describing the Collateral and such other reports in
connection with the Collateral as Secured Party may request.
6. Covenants of Pledgor. Pledgor shall:
(a) Cause Borrower to perform each and every covenant in the
Loan Documents applicable to Borrower;
(b) At all times keep at least one complete set of its records
concerning substantially all of the Collateral at its Chief Executive Office as
set forth in Schedule B hereto, and not change the location of its Chief
Executive Office or such records without giving Secured Party at least thirty
(30) days prior written notice thereof;
(c) To the extent it may lawfully do so, use its best efforts
to prevent the Issuers from issuing Future Rights or Proceeds, except for cash
dividends and other distributions, if any, that are not prohibited by the terms
of the Loan Agreement to be paid by any Issuer to Pledgor; and
(d) Upon receipt by Pledgor of any material notice, report, or
other communication from any of the Issuers or any Holder relating to all or any
part of the Collateral, deliver such notice, report or other communication to
Secured Party as soon as possible, but in no event later than five (5) days
following the receipt thereof by Pledgor.
7. Secured Party as Pledgor's Attorney-in-Fact.
(a) Pledgor hereby irrevocably appoints Secured Party as
Pledgor's attorney-in-fact, with full authority in the place and stead of
Pledgor and in the name of Pledgor, Secured Party or otherwise, from time to
time at Secured Party's discretion, to take any action and to execute any
instrument that Secured Party may reasonably deem necessary or advisable to
accomplish the purposes of this Agreement, including: (i) after the occurrence
and during the continuance of an Event of Default, to receive, endorse, and
collect all instruments made payable to Pledgor representing any dividend,
interest payment or other distribution in respect of the Collateral or any part
thereof to the extent permitted hereunder and to give full discharge for the
same and to execute and file governmental notifications and reporting forms;
(ii) to issue any notifications/instructions Secured Party reasonably deems
necessary pursuant to Section 3 of this Agreement; or (iii) during the
continuance of an Event of Default, to arrange for the transfer of the
Collateral on the books of any of the Issuers or any other Person to the name of
Secured Party or to the name of Secured Party's nominee.
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<PAGE> 9
(b) In addition to the designation of Secured Party as
Pledgor's attorney-in-fact in subsection (a), Pledgor hereby irrevocably
appoints Secured Party as Pledgor's agent and attorney-in-fact to make, execute
and deliver any and all documents and writings which may be necessary or
appropriate for approval of, or be required by, any regulatory authority located
in any city, county, state or country where Pledgor or any of the Issuers engage
in business, in order to transfer or to more effectively transfer any of the
Pledged Shares or otherwise enforce Secured Party's rights hereunder.
8. Remedies upon Default. Upon the occurrence and during
the continuance of an Event of Default:
(a) Secured Party may exercise in respect of the Collateral,
in addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default under
the Code (irrespective of whether the Code applies to the affected items of
Collateral), and Secured Party may also without notice (except as specified
below) sell the Collateral or any part thereof in one or more parcels at public
or private sale, at any exchange, broker's board or at any of Secured Party's
offices or elsewhere, for cash, on credit or for future delivery, at such time
or times and at such price or prices and upon such other terms as Secured Party
may deem commercially reasonable, irrespective of the impact of any such sales
on the market price of the Collateral. To the maximum extent permitted by
applicable law, Secured Party may be the purchaser of any or all of the
Collateral at any such sale and shall be entitled, for the purpose of bidding
and making settlement or payment of the purchase price for all or any portion of
the Collateral sold at any such public sale, to use and apply all or any part of
the Secured Obligations as a credit on account of the purchase price of any
Collateral payable at such public sale. Each purchaser at any such sale shall
hold the property sold absolutely free from any claim or right on the part of
Pledgor, and Pledgor hereby waives (to the extent permitted by law) all rights
of redemption, stay, or appraisal that it now has or may at any time in the
future have under any rule of law or statute now existing or hereafter enacted.
Pledgor agrees that, to the extent notice of sale shall be required by law, at
least ten (10) calendar days notice to Pledgor of the time and place of any
public sale or the time after which a private sale is to be made shall
constitute reasonable notification. Secured Party shall not be obligated to make
any sale of Collateral regardless of notice of sale having been given. Secured
Party may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. To the maximum
extent permitted by law, Pledgor hereby waives any claims against Secured Party
arising because the price at which any Collateral may have been sold at such a
private sale was less than the price that might have been obtained at a public
sale, even if Secured Party accepts the first offer received and does not offer
such Collateral to more than one offeree.
-9-
<PAGE> 10
(b) Pledgor hereby agrees that any sale or other disposition
of the Collateral conducted in conformity with reasonable commercial practices
of banks, insurance companies, or other financial institutions in the City of
Los Angeles, California in disposing of property similar to the Collateral shall
be deemed to be commercially reasonable.
(c) Pledgor hereby acknowledges that the sale by Secured Party
of any Collateral pursuant to the terms hereof in compliance with the Securities
Act of 1933 as now in effect or as hereafter amended, or any similar statute
hereafter adopted with similar purpose or effect (the "Securities Act"), as well
as applicable "Blue Sky" or other state securities laws may require strict
limitations as to the manner in which Secured Party or any subsequent transferee
of the Collateral may dispose thereof. Pledgor acknowledges and agrees that in
order to protect Secured Party's interest it may be necessary to sell the
Collateral at a price less than the maximum price attainable if a sale were
delayed or were made in another manner, such as a public offering under the
Securities Act. Pledgor has no objection to sale in such a manner and agrees
that Secured Party shall have no obligation to obtain the maximum possible price
for the Collateral. Without limiting the generality of the foregoing, Pledgor
agrees that, upon the occurrence and during the continuation of an Event of
Default, Secured Party may, subject to applicable law, from time to time attempt
to sell all or any part of the Collateral by a private placement, restricting
the bidders and prospective purchasers to those who will represent and agree
that they are purchasing for investment only and not for distribution. In so
doing, Secured Party may solicit offers to buy the Collateral or any part
thereof for cash, from a limited number of investors deemed by Secured Party, in
its reasonable judgment, to be institutional investors or other responsible
parties who might be interested in purchasing the Collateral. If Secured Party
shall solicit such offers, then the acceptance by Secured Party of one of the
offers shall be deemed to be a commercially reasonable method of disposition of
the Collateral.
(d) If Secured Party shall determine to exercise its right to
sell all or any portion of the Collateral pursuant to this Section, Pledgor
agrees that, upon request of Secured Party, Pledgor will, at its own expense:
(i) use its best efforts to execute and
deliver, and cause the Issuers and the directors and officers thereof to execute
and deliver, all such instruments and documents, and to do or cause to be done
all such other acts and things, as may be necessary or, in the opinion of
Secured Party, advisable to register such Collateral under the provisions of the
Securities Act, and to cause the registration statement relating thereto to
become effective and to remain effective for such period as prospectuses are
required by law to be furnished, and to make all amendments and supplements
thereto and to the related prospectuses which, in the opinion of Secured Party,
are necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto;
-10-
<PAGE> 11
(ii) use its best efforts to qualify the
Collateral under the state securities laws or "Blue Sky" laws and to obtain all
necessary governmental approvals for the sale of the Collateral, as requested by
Secured Party;
(iii) cause the Issuers to make available to
their respective security holders, as soon as practicable, an earnings statement
which will satisfy the provisions of Section 11(a) of the Securities Act;
(iv) execute and deliver, or cause the
officers and directors of the Issuers to execute and deliver, to any person,
entity or governmental authority as Secured Party may choose, any and all
documents and writings which, in Secured Party's reasonable judgment, may be
necessary or appropriate for approval, or be required by, any regulatory
authority located in any city, county, state or country where Pledgor or the
Issuers engage in business, in order to transfer or to more effectively transfer
the Pledged Shares or otherwise enforce Secured Party's rights hereunder; and
(v) do or cause to be done all such other
acts and things as may be necessary to make such sale of the Collateral or any
part thereof valid and binding and in compliance with applicable law.
Pledgor acknowledges that there is no adequate remedy at law for failure by it
to comply with the provisions of this Section and that such failure would not be
adequately compensable in damages, and therefore agrees that its agreements
contained in this Section may be specifically enforced.
(e) PLEDGOR EXPRESSLY WAIVES TO THE MAXIMUM EXTENT PERMITTED
BY LAW: (I) ANY CONSTITUTIONAL OR OTHER RIGHT TO A JUDICIAL HEARING PRIOR TO THE
TIME SECURED PARTY DISPOSES OF ALL OR ANY PART OF THE COLLATERAL AS PROVIDED IN
THIS SECTION; (II) ALL RIGHTS OF REDEMPTION, STAY, OR APPRAISAL THAT IT NOW HAS
OR MAY AT ANY TIME IN THE FUTURE HAVE UNDER ANY RULE OF LAW OR STATUTE NOW
EXISTING OR HEREAFTER ENACTED; AND (III) EXCEPT AS SET FORTH IN SUBSECTION (A)
OF THIS SECTION, ANY REQUIREMENT OF NOTICE, DEMAND, OR ADVERTISEMENT FOR SALE.
9. Application of Proceeds. After the occurrence and during the
continuance of an Event of Default, any cash held by Secured Party as Collateral
and all cash proceeds received by Secured Party in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral
pursuant to the exercise by Secured Party of its remedies as a secured creditor
as provided in Section 9 shall be applied from time to time by Secured Party as
provided in the Loan Agreement.
-11-
<PAGE> 12
10. Duties of Secured Party. The powers conferred on Secured Party
hereunder are solely to protect its interests in the Collateral and shall not
impose on it any duty to exercise such powers. Except as provided in Section
9-207 of the Code, Secured Party shall have no duty with respect to the
Collateral or any responsibility for taking any necessary steps to preserve
rights against any Persons with respect to any Collateral.
11. CHOICE OF LAW AND VENUE. THE VALIDITY OF THIS AGREEMENT, ITS
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES
HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF SECURED PARTY, IN ANY
OTHER COURT IN WHICH SECURED PARTY SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS
AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH
OF PLEDGOR AND SECURED PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE
LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR
TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH
THIS SECTION 12.
12. Amendments; Etc. No amendment or waiver of any provision of this
Agreement nor consent to any departure by Pledgor herefrom shall in any event be
effective unless the same shall be in writing and signed by Secured Party, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. No failure on the part of Secured
Party to exercise, and no delay in exercising any right under this Agreement,
the Guaranty, any other Loan Document, or otherwise with respect to any of the
Secured Obligations, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under this Agreement, the Guaranty, any other Loan
Document, or otherwise with respect to any of the Secured Obligations preclude
any other or further exercise thereof or the exercise of any other right. The
remedies provided for in this Agreement, the Guaranty, or otherwise with respect
to any of the Secured Obligations are cumulative and not exclusive of any
remedies provided by law.
13. Notices. Unless otherwise specifically provided herein, any notice
or other communication herein required or permitted to be given shall be in
writing and shall be delivered in the manner set forth in the Loan Agreement.
-12-
<PAGE> 13
14. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall: (i) remain in full
force and effect until the indefeasible payment in full of the Secured
Obligations; (ii) be binding upon Pledgor and its successors and assigns; and
(iii) inure to the benefit of Secured Party and its successors, transferees, and
assigns. Upon the indefeasible payment in full of the Secured Obligations, the
security interests granted herein shall automatically terminate and all rights
to the Collateral shall revert to Pledgor. Upon any such termination, Secured
Party will, at Pledgor's expense, execute and deliver to Pledgor such documents
as Pledgor shall reasonably request to evidence such termination. Such documents
shall be prepared by Pledgor and shall be in form and substance reasonably
satisfactory to Secured Party.
15. Security Interest Absolute. To the maximum extent permitted by law,
all rights of Secured Party, all security interests hereunder, and all
obligations of Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of any of the
Secured Obligations or any other agreement or instrument relating thereto,
including any of the Loan Documents;
(b) any change in the time, manner, or place of payment of, or
in any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from any of the Loan
Documents, or any other agreement or instrument relating thereto;
(c) any exchange, release, or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to departure
from any guaranty for all or any of the Secured Obligations; or
(d) any other circumstances that might otherwise constitute a
defense available to, or a discharge of, Pledgor.
To the maximum extent permitted by law, Pledgor hereby waives any right to
require Secured Party to: (A) proceed against or exhaust any security held from
Pledgor; or (B) pursue any other remedy in Secured Party's power whatsoever.
16. Headings. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement or be given any substantive effect.
17. Severability. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and
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<PAGE> 14
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same Agreement.
19. Waiver of Marshaling. Each of Pledgor and Secured Party
acknowledges and agrees that in exercising any rights under or with respect to
the Collateral: (i) Secured Party is under no obligation to marshal any
Collateral; (ii) may, in its absolute discretion, realize upon the Collateral in
any order and in any manner it so elects; and (iii) may, in its absolute
discretion, apply the proceeds of any or all of the Collateral to the Secured
Obligations in any order and in any manner it so elects. Pledgor and Secured
Party waive any right to require the marshaling of any of the Collateral.
20. Arbitration.
(a) This arbitration provision relates to and governs the
resolution of any controversies or claims between and among Pledgor, Secured
Party, Agent, Collateral Agent and Banks (hereinafter in this provision
collectively referred to as the "Parties"), or any subset of them, that in any
way relate or pertain to the Loan Documents or the transactions or dealings
among the Parties with respect thereto, including but not limited to any
controversies or claims that arise from:
(i) This Agreement (including any renewals,
restatements, amendments, supplements, extensions or modifications of this
Agreement) or any other Loan Document;
(ii) Any document, agreement or procedure related to
or delivered in connection with this Agreement or any other Loan Document;
(iii) Any breach or violation by any Party of this
Agreement or any other Loan Document; or
(iv) Any claim for damages (whether in tort or
contract) resulting from any business conducted between the Parties or any
subset of them that in any way pertains to the Loan Documents or the
transactions contemplated thereby.
(b) At the request of any Party, any such controversies or
claims will be settled by arbitration in accordance with the United States
Arbitration Act. The United States Arbitration Act will apply even though this
Agreement provides that it is governed by California law.
-14-
<PAGE> 15
(c) Arbitration proceedings will be administered by the
American Arbitration Association and will be subject to its commercial rules of
arbitration. The arbitration will be conducted within Los Angeles County,
California.
(d) For purposes of the application of the statute of
limitations, the filing of an arbitration pursuant to this paragraph is the
equivalent of the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether any such
claim or controversy is barred by the statute of limitations and, if so, to
dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is
arbitrable, the arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding
may be submitted to any authorized court of law to be confirmed and enforced.
(g) The procedure described above in this Section will not
apply if the controversy or claim, at the time of the proposed submission to
arbitration, arises from or relates to an obligation owed to Collateral Agent,
Agent, or any Bank that is secured by real property located in California. In
this case, all affected Parties must consent to submission of the claim or
controversy to arbitration. If such affected Parties do not consent to
arbitration, the controversy or claim will be settled as follows:
(i) The affected Parties will designate a referee (or
a panel of referees) selected under the auspices of the American Arbitration
Association in the same manner as arbitrators are selected in
Association-sponsored proceedings;
(ii) The designated referee (or the panel of
referees) will be appointed by a court as provided in California Code of Civil
Procedure Section 638 and the following related sections;
(iii) The referee (or the presiding referee of the
panel) will be an active attorney or a retired judge; and
(iv) The award that results from the decision of the
referee (or the panel) will be entered as a judgment in the court that appointed
the referee, in accordance with the provisions of California Code of Civil
Procedure Sections 644 and 645.
(h) This provision does not limit the right of the Parties to:
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<PAGE> 16
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal
property collateral; or
(iii) act in a court of law, before, during or after
the arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim,
additional or supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Parties, including the suing party, to
submit the controversy or claim to arbitration if the other party contests the
lawsuit. However, if the controversy or claim arises from or relates to an
obligation to Collateral Agent, Agent, or any Bank which is secured by real
property located in California at the time of the proposed submission to
arbitration, this right is limited according to the provision above requiring
the consent of all affected Parties to seek resolution through arbitration.
(j) If the Collateral Agent, Agent or any Bank forecloses
against any real property securing any obligation contained in any Loan
Document, such foreclosing Party has the option to exercise the power of sale
under the deed of trust or mortgage, or to proceed by judicial foreclosure.
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<PAGE> 17
IN WITNESS WHEREOF, Pledgor and Secured Party have caused this
Agreement to be duly executed and delivered by their officers thereunto duly
authorized as of the date first written above.
BANK OF AMERICA NATIONAL CENTRAL FINANCIAL
TRUST AND SAVINGS ASSOCIATION, ACCEPTANCE CORPORATION,
as Collateral Agent a Delaware corporation
By ________________________ By __________________________
Title: ____________________ Title:_______________________
S-1
<PAGE> 18
SCHEDULE A
TO
STOCK PLEDGE AGREEMENT
Pledgor: Central Financial Acceptance Corporation
<TABLE>
<CAPTION>
Pledged Shares
--------------
Former
Name, if any,
in which Pledgor's
Number of Certificate Certificate Percentage Jurisdiction of
Issuer Shares Class Number(s) Issued Ownership Incorporation
- ------ ------ ----- ------------ ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Central 100% California
Installment
Credit
Corporation
</TABLE>
<PAGE> 19
SCHEDULE B
TO
STOCK PLEDGE AGREEMENT
Pledgor: Central Financial Acceptance Corporation, a Delaware corporation
Address of Chief Executive Office:
5480 East Ferguson Drive
Commerce, California 90022
<PAGE> 20
SCHEDULE C
TO
STOCK PLEDGE AGREEMENT
Existing Future Rights and Proceeds: None
<PAGE> 1
Exhibit 10.21
BANNER'S CENTRAL ELECTRIC, INC.
SECOND AMENDED AND RESTATED SECURITY AGREEMENT
This SECOND AMENDED AND RESTATED SECURITY AGREEMENT, dated as
of June 24, 1996, is entered into between Debtor and Collateral Agent, with
reference to the facts that: (A) Debtor, CICC, Agent and Banks contemporaneously
herewith are entering into the Loan Agreement; (B) Debtor contemporaneously
herewith is executing the BCE Guaranty in favor of Agent on behalf of the Banks
pursuant to which the Debtor will guaranty the obligations of CICC under the
Loan Agreement; and (B) Debtor desires to grant to Collateral Agent a security
interest in the Collateral as security for the Secured Obligations. Reference is
made to that certain Amended and Restated Security Agreement dated as of
September 10, 1992, between Debtor and Collateral Agent; which aforesaid
Security Agreement is referred to hereinafter as the "Prior Security Agreement."
Effective as of the Closing Date, this Agreement amends and restates in its
entirety the Prior Security Agreement, which Prior Security Agreement shall be
superseded and replaced by this Agreement as of the Closing Date.
NOW, THEREFORE, in consideration of the mutual promises,
covenants, representations, and warranties set forth herein and for other good
and valuable consideration, the parties hereto agree as follows:
1. Definitions and Construction. As used herein, the following terms
shall have the meanings respectively set forth after each:
"Account Debtor" shall have the meaning ascribed thereto
inSection 9105 of the Code.
"Accounts" means all of Debtor's presently existing and
hereafter arising: (a) accounts (including all "accounts" as such term is
defined in Section 9106 of the Code); (b) chattel paper (including all "chattel
paper" as such term is defined in Section 9105(l)(b) of the Code), including
certificated securities (as such term is defined in Section 8102 of the Code)
and instruments (as such term is defined in Section 9105(l)(i) of the Code)
constituting part of "chattel paper" as such term is defined in Section
9105(l)(b) of the Code; (c) contract rights; and (d) credit insurance,
guarantees, and letters of credit with respect to which Debtor is the
beneficiary, together with any security for any of the foregoing.
"Agent" means Bank of America National Trust and Savings
Association and its successors, as agent for Banks under the Loan Agreement, and
any successor agent appointed pursuant to the provisions of the Loan Agreement.
"Agreement" means this Second Amended and Restated Security
Agreement.
"Bankruptcy Code" means The Bankruptcy Reform Act of 1978 (11
U.S.C. SectionSection 101-1330), as amended or supplemented from time to time,
and any successor statute, and all of the rules issued or promulgated in
connection therewith.
- 1 -
<PAGE> 2
"Banks" means all Persons which now or hereafter are
signatories to the Loan Agreement in such capacity.
"BCE Guaranty" means that certain Continuing Guaranty executed
by Debtor in favor of Agent for the benefit of the Banks dated the date hereof.
"Books and Records" means all of Debtor's present and future
books and records, including accounting journals and ledgers, deposit account
statements, computer programs, disc or tape files, printouts, and other
computer-prepared information, which in each case summarizes, evidences,
provides information concerning, or is used in connection with, all or any part
of the Collateral.
"CFR" means the Code of Federal Regulations, as amended or
supplemented from time to time.
"Chief Executive Office" means the place or location where
Debtor is deemed located pursuant to the provisions of Section 9103(3)(d) of the
Code.
"CICC" means Central Installment Credit Corporation, a
California corporation.
"Code" means the California Uniform Commercial Code, as
amended or supplemented from time to time.
"Collateral" means the Accounts, the Books and Records, the
Documents, the Equipment, the General Intangibles, the Inventory, the Money, the
Pledged Collateral, the Securities, and the Proceeds; provided, however, that,
notwithstanding anything to the contrary contained in this Agreement, the
Collateral hereunder does not include any "infectious waste", "restricted
hazardous waste", or "hazardous waste" as those terms are defined under one or
more of 42 U.S.C. Section 6903(5) and California Health & Safety Code
SectionSection 25117, 25117.5, and 25122.7, as any one or more of the foregoing
sections may be from time to time amended, or under any regulations thereunder.
"Collateral Agent" means Bank of America National Trust and
Savings Association and its successors, in its capacity as collateral agent for
Agent and Banks pursuant to the Intercreditor Agreement, and any successor
collateral agent appointed pursuant to the provisions of the Intercreditor
Agreement.
"Debtor" means Banner's Central Electric, Inc., a California
corporation. "Default" means any Event of Default or any Unmatured Event of
Default or any default under the BCE Guaranty.
"Documents" means all present and future right, title and
interest of Debtor in and to any "Documents of title," as such term is defined
in Section 1201(15) of the Code.
- 2 -
<PAGE> 3
"Equipment" means all of Debtor's presently existing or
hereafter acquired or created equipment (including all "equipment", as such term
is defined in Section 9109(2) of the Code) in all of its forms, wherever
located, and all parts thereof and all accessions thereto and documents
therefor, including fixtures, furnishings, furniture, heavy equipment, jibs,
machinery, molds, motors, pallets, tooling, tools, and trade fixtures, and all
cars, forklifts, rolling stock, tractors, trucks, and other vehicles, and any
and all spare and replacement parts and supplies used in connection with the
maintenance or operation of any one or more of the foregoing.
"General Intangibles" means all of Debtor's presently existing
and hereafter arising general intangibles (including all "general intangibles,"
as such term is defined in Section 9106 of the Code), including all: blueprints;
catalogs; choses or things in action; computer disks; computer programs;
computer tapes; customer lists; deposit accounts (including all "deposit
accounts," as such term is defined in Section 9105(l)(e) of the Code); drawings;
goodwill; literature; claims due or recoverable from pension funds; patents;
patent rights; purchase orders; reports; route lists; service marks; service
mark rights; software; tax refunds; tax refund claims; trade names; trade name
rights; trademarks; trademark rights; rights to receive and interests in
insurance settlement proceeds; rights under or pursuant to interest rate
protection, swap, hedge or cap agreements; rights under or pursuant to
subscription agreements or net worth maintenance agreements; rights under
licensing, distribution, representation, agency, sales, and other contracts or
agreements; claims for damages to persons or Assets; interests in and rights to
receive distributions of Assets with respect to general partnerships, limited
partnerships, joint ventures, trusts, estates of deceased persons (irrespective
of whether in probate), and unincorporated associations; rights to payment and
other rights under any guaranty, indemnity, or right of contribution or
subrogation; rights with respect to any approval, certification, license, or
permit issued by or under the authority of any governmental entity, or any
subdivision, department, or agency thereof, including to the maximum extent
permitted by law, licenses issued to Debtor by any alcoholic beverage licensing
authority; rights with respect to or interests in any minerals or the like
(including oil or gas) before extraction and which attach thereto as extracted;
and rights in and to all security agreements, leases, or other contracts
securing or otherwise relating to any of the foregoing or any Account or any
Pledged Collateral.
"Intercreditor Agreement" means that certain Second Amended
and Restated Collateral Agency Intercreditor Agreement, dated as of June 24,
1996, entered into between Agent, Collateral Agent, and Banks.
"Inventory" means all of Debtor's presently existing or
hereafter acquired or created inventory (including all "inventory" as such term
is defined in Section 9109(4) of the Code) in all of its forms, wherever located
(whether in the possession of Debtor or a bailee or other person for storage,
transit, or otherwise), including: (a) all "goods," as such term is defined in
Section 9105(l)(h) of the Code, manufactured or assembled or held for sale or
lease or to be furnished under any contract of service; (b) raw materials; (c)
work in process; (d) finished goods; (e) all merchandise or "goods" as such term
is defined in Section 9105(l)(h) of the Code, which are returned to or
repossessed by Debtor; (f) all materials used or consumed in Debtor's business;
and (g) all additions and accessions to any of the foregoing and all
replacements and products of any of the foregoing together with all containers,
packing, packaging, or shipping materials related thereto.
- 3 -
<PAGE> 4
"Loan Agreement" means that certain Third Amended and Restated
Loan Agreement, dated as of June 24, 1996, among Debtor, CICC, Banks, and Agent.
"Money" means all present and future right, title and interest
of Debtor in and to any "Money," as such term is defined in Section 9102(24) of
the Code.
"Pledged Collateral" means all presently existing and
hereafter acquired or created indebtedness held by Debtor, and all evidences of
such indebtedness, including all instruments (including all "instruments" as
such term is defined in Section 9105(i) of the Code), cash, and other Assets
from time to time received, receivable, or otherwise distributed in respect of,
in exchange for, or on account of such indebtedness.
"Proceeds" means all proceeds (including proceeds of proceeds)
of the Collateral, including all: (a) rights, benefits, distributions, premiums,
profits, dividends, interest, cash, Accounts, Documents, Equipment, General
Intangibles, Inventory, Money, Pledged Collateral, Securities, and other Assets
from time to time received, receivable, or otherwise distributed in respect of,
or in exchange for, or as a replacement of or a substitution for, any of the
Collateral; (b) "proceeds," as such term is defined in Section 9306 of the Code;
(c) proceeds of any insurance, indemnity, warranty, or guarantee (including
guarantees of delivery) payable from time to time with respect to any of the
Collateral; (d) payments (in any form whatsoever) made or due and payable to
Debtor from time to time in connection with any requisition, confiscation,
condemnation, seizure, or forfeiture of all or any part of the Collateral; and
(e) other amounts from time to time paid or payable under or in connection with
any of the Collateral.
"Relevant State" means California.
"Secured Obligations" means all liabilities, obligations, or
undertakings owing by Debtor to any one or more of Agent, Collateral Agent, and
Banks, of any kind or description arising out of or outstanding under, advanced
or issued pursuant to, or evidenced by the BCE Guaranty, the Loan Agreement,
this Agreement, or any other Loan Document to which Debtor is a party,
irrespective of whether for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, voluntary or involuntary, whether
now existing or hereafter arising, and including all interest (including
interest which accrues after the filing of a case under the Bankruptcy Code) and
any and all costs, fees (including attorneys' fees and expenses), and expenses
which Debtor is required to pay pursuant to any of the foregoing, by law, or
otherwise.
"Securities" means all present and future right, title and
interest of Debtor in and to any "security," as such term is defined in Section
8102(l)(c) of the Code.
Any term used in this Agreement and not specifically defined in this
Agreement that is defined in the Loan Agreement shall have the meaning defined
for such term in the Loan Agreement when used in this Agreement. Unless the
context of this Agreement clearly requires otherwise, references to the plural
include the singular and to the singular include the plural, the part includes
the whole, the terms "include" and "including" are not limiting, and the term
"or" has, except where otherwise indicated, the inclusive meaning represented by
the phrase "and/or."
- 4 -
<PAGE> 5
The words "hereof," "herein," "hereby," "hereunder," and other similar terms in
this Agreement refer to this Agreement as a whole and not exclusively to any
particular provision of this Agreement. Article, section, subsection, exhibit,
and schedule references are to this Agreement unless otherwise specified. All of
the exhibits or schedules attached to this Agreement shall be deemed
incorporated herein by reference. Any reference in this Agreement to any of the
following documents includes any and all alterations, amendments, restatements,
extensions, modifications, renewals, or supplements thereto or thereof, as
applicable: this Agreement; the other Loan Documents; and the Letters of Credit.
Neither this Agreement nor any uncertainty or ambiguity contained herein shall
be construed or resolved against Collateral Agent or Debtor, whether under any
rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by each of the parties hereto and its counsel and shall be construed
and interpreted according to the ordinary meaning of the words used so as to
accomplish fairly the purposes and intentions of all parties hereto. In the
event of any direct conflict between the express terms and provisions of this
Agreement and those of the Loan Agreement, the terms and provisions of the Loan
Agreement shall control.
2. The Security Interest. Debtor hereby pledges, grants, transfers, and
assigns to Collateral Agent a security interest in all of Debtor's right, title,
and interest in and to the Collateral in order to secure the prompt payment and
performance in full by Debtor when due, whether at stated maturity, by
acceleration, or otherwise (including amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code), of
all of the Secured Obligations. This Agreement shall create a continuing
security interest in the Collateral and shall: (i) remain in full force and
effect until the indefeasible payment in full of the Secured Obligations
including the cash collateralization, expiration, or cancellation of all Secured
Obligations consisting of Letters of Credit, and the full and final termination
of any commitment to extend any financial accommodations under the Loan
Agreement; (ii) be binding upon Debtor, its successors and assigns; and (iii)
inure to the benefit of Collateral Agent, Agent, and Banks and their successors,
transferees, and assigns. Upon the indefeasible payment in full of the Secured
Obligations including the cash collateralization, expiration, or cancellation of
all Secured Obligations relating to Letters of Credit, and the full and final
termination of any commitment to extend any financial accommodations under the
Loan Agreement, the security interests granted hereby shall automatically
terminate. Upon any such termination, Collateral Agent will, at Debtor's
expense, execute and deliver to Debtor such documents as Debtor shall reasonably
request to evidence such termination; such documents shall be prepared by Debtor
and shall be in form and substance reasonably satisfactory to Collateral Agent.
To the maximum extent permitted by law, Debtor hereby waives any right to
require Collateral Agent, Agent, or any Bank to: (A) proceed against or exhaust
any security held from Debtor; or (B) pursue any other remedy in Collateral
Agent's, Agent's, or any Bank's power whatsoever.
3. Delivery of Certain Pledged Collateral, Certificated Securities and
Other Collateral. Except for instruments and items being processed for
collection in the ordinary course of Debtor's business, all Collateral with
respect to which perfection can be obtained only by taking possession thereof
shall be promptly delivered to and held by or on behalf of Collateral Agent
pursuant hereto and shall be in suitable form for transfer by delivery, or shall
be
- 5 -
<PAGE> 6
accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance reasonably satisfactory to Collateral Agent.
4. Representations and Warranties of Debtor. Debtor represents,
warrants, and covenants as follows: (a) Debtor has taken all steps it deems
necessary or appropriate to be informed on a continuing basis of changes or
potential changes affecting the Collateral, and Debtor agrees that Collateral
Agent shall have no responsibility or liability for informing Debtor of any such
changes or potential changes or for taking any action or omitting to take any
action with respect thereto; (b) All information contained herein or hereafter
supplied in writing to Collateral Agent by or on behalf of Debtor with respect
to the Collateral is, or will be in the case of information hereafter supplied,
accurate and complete in all material respects; (c) Upon the filing of financing
statements and the recordation of fixture filings in the appropriate filing or
recording offices in the Relevant State, this Agreement creates, in the case of
presently existing Collateral, and will create, in the case of after acquired
Collateral, at such time as Debtor acquires rights in such Collateral, a valid,
perfected first priority security interest (subject only to Permitted Liens) in
and to all of such Collateral other than: (i) "goods," as such term is defined
in Section 9105(h) of the Code, constituting Collateral which are covered by a
certificate of title issued under a statute of the State of California or of
another jurisdiction which requires indication of a security interest on the
certificate as a condition of perfection, whether such certificate is designated
a "certificate of title," "certificate of ownership," or otherwise; and (ii)
that portion of the Collateral for which perfection can only be obtained by
taking possession thereof or by giving notice with respect thereto; (d) Upon
Collateral Agent taking possession thereof or by giving notice with respect
thereto, this Agreement creates, in the case of presently existing Collateral,
and will create, in the case of after acquired Collateral, at such time as
Debtor acquires rights in such Collateral, a valid, perfected first priority
security interest (subject only to Permitted Liens) in and to that portion of
the Collateral for which perfection can only be obtained by taking possession
thereof or by giving notice with respect thereto, as applicable; (e) Upon the
indication of the security interest of Collateral Agent on the certificate of
title covering the items of Collateral set forth in Section 4(c)(i) hereof, this
Agreement creates, in the case of such Collateral which is presently existing,
and will create, in the case of such Collateral which is hereafter acquired, a
valid, perfected first priority security interest (subject only to Permitted
Liens) in and to such items of Collateral; (f) All filings, assignments,
notices, and indications necessary to perfect the security interests of
Collateral Agent in and upon the Collateral referenced in clauses (c), (d), and
(e) of this Section 4 and required to be executed by Debtor under applicable law
have been executed by Debtor and delivered by Debtor to Collateral Agent. All
Collateral for which perfection can be obtained only through possession has been
delivered to Collateral Agent; (g) The Chief Executive Office of Debtor is
located at the street address, city, county (or equivalent political
subdivision), state, and zip code (or equivalent postal routing code) specified
therefor in Part A of Schedule A attached hereto; (h) All of the Equipment and
Inventory is located at the places specified by street address, city, county (or
equivalent political subdivision), state, and zip code (or equivalent postal
routing code) in Part B of Schedule A attached hereto; (i) The offices where
Debtor keeps its Books and Records are located at the places specified by street
address, city, county (or equivalent political subdivision), state, and zip code
(or equivalent postal routing code) and nation (if other than the United States)
in Part C of Schedule A attached hereto; (j) Debtor does not do business under
any trade name or fictitious business name, except as specified
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<PAGE> 7
in Part D of Schedule A attached hereto; and (k) except as otherwise disclosed
on the Disclosure Schedule, Debtor has exclusive possession and control of the
Equipment and the Inventory.
5. Further Assurances. Debtor agrees that from time to time, at the
expense of Debtor, Debtor will promptly execute and deliver all further
instruments and documents, and take all further action that may be necessary or
reasonably desirable or that Collateral Agent may reasonably request, in order
to perfect and protect any security interest granted or purported to be granted
hereby or to enable Collateral Agent to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, Debtor will: (i) at the request of Collateral
Agent, mark conspicuously chattel paper included in the Accounts; (ii) at the
request of Collateral Agent, mark conspicuously each of its records pertaining
to the Collateral with a legend, in form and substance satisfactory to
Collateral Agent, indicating that such Collateral is subject to the security
interest granted hereby; (iii) except for instruments and items being processed
for collection in the ordinary course of Debtor's business, if any Collateral or
Pledged Collateral shall be evidenced by a promissory note or other instrument,
deliver and pledge to Collateral Agent such note or instrument duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance reasonably satisfactory to Collateral Agent; (iv) execute and file
such financing or continuation statements, or amendments thereto, and such other
documents, instruments, or notices, as may be necessary or reasonably desirable
or as Collateral Agent may reasonably request, in order to perfect and preserve
the security interests granted or purported to be granted hereby; (v) allow
inspection of the Collateral by Collateral Agent or persons designated by
Collateral Agent; and (vi) appear in and defend any action or proceeding that
may affect Debtor's title to or Collateral Agent's security interest in any or
all of the Collateral. Debtor hereby authorizes Collateral Agent to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of Debtor. A carbon,
photographic, photostatic, or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where not prohibited by law; provided,
however, that nothing contained in this Agreement shall relieve Debtor of its
obligations to file all necessary financing and continuation statements in order
to perfect and protect the security interests granted or purported to be granted
hereby. Debtor will furnish to Collateral Agent on the Closing Date and
thereafter, upon the reasonable request of Collateral Agent: (a) a certificate
executed by a Responsible Officer of Debtor, and dated as of the date of
delivery to Collateral Agent, itemizing in such detail as Collateral Agent may
reasonably request, that portion of the Collateral which, as of the date of such
certificate, has been delivered to Collateral Agent by Debtor pursuant to the
provisions of this Agreement; and (b) such statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as Collateral Agent may reasonably request.
6. Covenants of Debtor. Debtor shall: (a) Notify Collateral Agent
promptly of any change in Debtor's name or the use of any trade name not set
forth in Part D of Schedule A attached hereto; (b) Keep the Equipment and
Inventory (other than Inventory sold in the ordinary course of business or
Equipment and Inventory sold or otherwise disposed of as permitted by the Loan
Agreement) at the places therefor specified in Part B of Schedule A attached
hereto and not move any Equipment or Inventory to a location other than those
locations identified in Part B of
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<PAGE> 8
Schedule A attached hereto except as may otherwise be permitted by the Loan
Agreement; (c) Keep its Chief Executive Office and the office(s) where it keeps
the Books and Records and all originals of all chattel paper that evidence
Accounts at the locations specified therefor in Parts A and C, respectively, of
Schedule A attached hereto (unless such chattel paper has been delivered to
Collateral Agent), or, upon thirty (30) calendar days prior written notice to
Collateral Agent, at such other locations designated in such notice; and (d)
Continue to collect, at its own expense, all amounts due or to become due to
Debtor under the Accounts. In connection with such collections, Debtor shall
take such action as Debtor or Collateral Agent may reasonably deem necessary or
advisable to enforce collection of the Accounts; provided, however, that
Collateral Agent shall have the right, at any time upon the occurrence and
during the continuance of an Event of Default, to notify the Account Debtors or
obligors under any Accounts of the assignment of such Accounts to Collateral
Agent and to direct such Account Debtors or obligors to make payment of all
amounts due or to become due to Debtor thereunder directly to Collateral Agent,
and, upon such notification and at the expense of Debtor, Collateral Agent shall
have the right to enforce collection of any such Accounts and to adjust, settle,
or compromise the amount or payment thereof in the same manner and to the same
extent as Debtor might have done. So long as such Event of Default continues:
(i) all amounts and Proceeds received by Debtor in respect of the Accounts shall
be received in trust for the benefit of Collateral Agent, shall be segregated
from other funds of Debtor, and shall be paid over forthwith to Collateral Agent
in the same form as so received (with any necessary endorsement) to be held as
cash collateral and applied as provided by Section 9 hereof; (ii) Debtor shall
not adjust, settle, or compromise the amount or payment of any Accounts, or
release wholly or partly any Account Debtor or obligor thereof or allow any
credit or discount thereon; and (iii) at the request of Collateral Agent, Debtor
shall instruct all customers and other Persons obligated with respect to all
Accounts to make all payments to one or more other banks in any state in the
United States of America (by instructing that such payments be remitted to a
post office box which shall be in the name and the control of such bank) under a
restricted account agreement duly executed by Debtor and such bank or under
other arrangements, in form and substance satisfactory to Collateral Agent,
pursuant to which Debtor shall have irrevocably instructed such bank (and such
bank shall have agreed) to remit all proceeds of such payments directly to
Collateral Agent for deposit into any collateral account or as Collateral Agent
may otherwise instruct such bank. Debtor will hold and preserve its Books and
Records and chattel paper and will permit representatives of Collateral Agent,
Banks, and Agent to inspect and make abstracts from such Books and Records and
chattel paper.
7. Collateral Agent as Debtor's Attorney-in-Fact. Debtor hereby
irrevocably appoints Collateral Agent as Debtor's attorney-in-fact, with full
authority in the place and stead of Debtor and in the name of Debtor or
otherwise, from time to time after the occurrence and during the continuance of
an Event of Default, to take any action and to execute any instrument or
application that Collateral Agent may reasonably deem necessary or advisable to
accomplish the purposes of this Agreement, including: (a) To obtain and adjust
insurance required to be paid to Collateral Agent; (b) To ask, demand, collect,
sue for, recover, impound, receive, and give acquittance and receipts for moneys
due and to become due under or in respect of any of the Collateral; (c) To
receive, endorse, and collect any checks, drafts, notes or other instruments,
documents, and chattel paper in connection with clauses (a) and (b) of this
Section 7; (d) To file any claims or take any action or institute any
proceedings that Collateral Agent may deem
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<PAGE> 9
necessary or reasonably desirable for the collection of any of the Collateral or
otherwise to enforce the rights of Collateral Agent with respect to any of the
Collateral; (e) To make, execute, and deliver any and all documents and writings
which may, in Collateral Agent's judgment, be necessary or reasonably
appropriate for approval of, or be required by, any regulatory authority located
in the city, county, state, or country where Debtor or Debtor's Subsidiaries
engage in business, in order to transfer or to transfer more effectively any of
the Collateral or otherwise enforce Collateral Agent's rights hereunder; and (f)
Generally to sell, transfer, pledge, make any agreement with respect to, or
otherwise deal with, any of the collateral as fully and completely as though
Collateral Agent were the absolute owner thereof and to do, at Debtor's expense,
at any time, or from time to time all acts and things that Collateral Agent
deems reasonably necessary to protect, preserve, or realize upon the Collateral
and Collateral Agent's security interest therein in order to effect the intent
of this Agreement, all as fully and effectively as Debtor might do.
8. Remedies Upon Event of Default. Upon the occurrence and during the
continuance of an Event of Default, Collateral Agent may exercise in respect of
the Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the Code (irrespective of whether the Code applies to the affected
items of Collateral), and Collateral Agent may also without notice (except as
specified below) sell or otherwise dispose of the Collateral or any part thereof
in one or more parcels at public or private sale, at any exchange, broker's
board, or at any of Collateral Agent's offices or elsewhere, for cash, on
credit, or for future delivery, at such time or times and at such price or
prices and upon such other terms as Collateral Agent may deem commercially
reasonable, irrespective of the impact of any such sales on the market price of
the Collateral. To the maximum extent permitted by applicable law, Collateral
Agent may be the purchaser of any or all of the Collateral at any such sale and
shall be entitled, for the purpose of bidding and making settlement or payment
of the purchase price for all or any portion of the Collateral sold at any such
public sale, to use and apply all or any part of the Secured obligations owed to
or represented by such credit bidding party as a credit on account of the
purchase price of any Collateral payable by such party at such sale. Each
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right on the part of Debtor, and Debtor hereby waives (to the maximum
extent permitted by law) all rights of redemption, stay, or appraisal that it
now has or may at any time in the future have under any rule of law or statute
now existing or hereafter enacted. Debtor agrees that, to the extent notice of
sale shall be required by law, at least five (5) calendar days notice to Debtor
of the time and place of any public sale or the time after which a private sale
is to be made shall constitute reasonable notification. Collateral Agent shall
not be obligated to make any sale of Collateral regardless of notice of sale
having been given. Collateral Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. To the maximum extent permitted by law, Debtor hereby waives any
claims against Collateral Agent, Lender, Agent, or Banks arising because the
price at which any Collateral may have been sold at such a private sale was less
than the price that might have been obtained at a public sale, even if
Collateral Agent accepts the first offer received and does not offer such
Collateral to more than one offeree.
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<PAGE> 10
9. Application of Proceeds. After the occurrence and during the
continuance of an Event of Default, any cash held by Collateral Agent as
Collateral and all cash Proceeds received by Collateral Agent in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral pursuant to the exercise by Collateral Agent of its remedies as a
secured creditor as provided in Section 8 of this Agreement shall be applied
from time to time by Collateral Agent as provided in the Intercreditor
Agreement. At such time as the Secured Obligations are indefeasibly paid in full
in cash, if Collateral Agent holds any excess funds, it shall release them to
Debtor or to the Person or Persons legally entitled thereto, or, if Collateral
Agent has doubts as to whom such funds should be released, Collateral Agent may
interplead such funds.
10. Collateral Agent; Duties; Standard of Care. The powers conferred on
Collateral Agent hereunder are solely to protect its, Agent's, and Banks'
interests in the Collateral and shall not impose on it, Agent, or Banks any duty
to exercise such powers. Collateral Agent shall have no duty with respect to the
Collateral or any responsibility for taking any necessary steps to preserve
rights against any Persons with respect to any Collateral. Secured Party shall
be deemed to have exercised reasonable care in the custody and preservation of
Collateral at any time in its possession if Secured Party exercises the same
degree of care with respect thereto as it exercises with respect to its own
property. Collateral Agent shall act or not act, and the powers of Collateral
Agent to act on behalf of Agent and the Banks shall be, as set forth in the
Intercreditor Agreement.
11. Debtor Remains Liable. Notwithstanding anything to the contrary
contained in this Agreement: (a) Debtor shall remain liable under the contracts
and agreements included in the Collateral to the extent set forth therein to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed; (b) the exercise by Collateral Agent of
any of its rights hereunder shall not release Debtor from any of its duties or
obligations under the contracts and agreements included in the Collateral; and
(c) Collateral Agent shall not have any obligation or liability under the
contracts and agreements included in the Collateral by reason of this Agreement,
nor shall Collateral Agent be obligated to perform any of the obligations
thereunder.
12. Rights of Collateral Agent, Agent and Banks Inter Se. The rights,
inter se, of Collateral Agent, Agent and Banks with respect to the Collateral
shall be as set forth in the Intercreditor Agreement.
13. Choice of Governing Law. Except as may otherwise be specifically
set forth in the Loan Agreement: (a) this Agreement shall be deemed to have been
made in the State of California; and (b) the validity of this Agreement, and the
construction, interpretation, and enforcement hereof, and the rights of the
parties hereto shall be determined under, governed by, and construed in
accordance with the laws of the State of California.
14. Amendments. No amendment or waiver of any provision of this
Agreement nor consent to any departure by Debtor herefrom shall under any
circumstances be effective unless the same shall be in writing and signed by
Collateral Agent, and then such waiver or consent shall
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<PAGE> 11
be effective only in the specific instance and for the specific purpose for
which given. No failure on the part of Collateral Agent, Agent, or any Bank to
exercise, and no delay in exercising, any right under this Agreement, the Loan
Agreement, or otherwise with respect to any of the Secured Obligations shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right under this Agreement, the Loan Agreement, or otherwise with respect to any
of the Secured Obligations preclude any other or further exercise thereof or the
exercise of any other right. The remedies provided for in this Agreement or
otherwise with respect to any of the Secured Obligations are cumulative and not
exclusive of any remedies provided by law. Any amendment, modification,
restatement, supplement, termination, waiver, or consent hereto or hereof shall
be binding upon Debtor to the extent that Debtor has executed and delivered
same.
15. Notices. Unless otherwise specifically provided herein, all
notices, demands, instructions, requests, and other communications required or
permitted to be given to, or made upon, any party hereto shall be in writing and
shall be personally delivered or sent by registered or certified mail, postage
prepaid, return receipt requested, and shall be deemed to be given for purposes
of this Agreement on the day that such writing is received by the Person to whom
it is to be sent pursuant to the provisions of this Agreement. Unless otherwise
specified in a notice sent or delivered in accordance with the foregoing
provisions of this Section 15, notices, demands, requests, instructions, and
other communications in writing shall be given to or made upon the respective
parties hereto at their respective addresses specified on the signature pages to
this Agreement.
16. Headings. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement or be given any substantive effect.
17. Severability. In case any provision in or obligation under this
Agreement shall be invalid, illegal, or unenforceable in any jurisdiction, the
validity, legality, and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
18. Counterparts. This Agreement may be executed in one or more
counterparts or duplicates, each of which shall be deemed an original. All of
such counterparts, taken together, shall constitute one and the same Agreement.
19. Waiver of Marshaling. Debtor and Collateral Agent acknowledge and
agree that, in exercising any rights under or with respect to the Collateral,
Collateral Agent: (a) is under no obligation to marshal any Collateral; (b) may,
in its discretion, but subject to the provisions of the Intercreditor Agreement
and subject to the provisions of any intercreditor agreements from time to time
in effect with Floor Plan Lenders of Debtor, realize upon such Collateral in any
order and in any manner it so elects; and (c) may, in its discretion, but
subject to the provisions of the Intercreditor Agreement and subject to the
provisions of any intercreditor agreements from time to time in effect with
Floor Plan Lenders of Debtor, apply the proceeds of any or all of such
Collateral to the obligations secured by the Collateral in any order and in any
manner it so elects.
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<PAGE> 12
Debtor and Collateral Agent each waive any right to require the marshaling of
any Collateral, including any right pursuant to SectionSection 2899 and 3433 of
the California Civil Code.
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<PAGE> 13
IN WITNESS WHEREOF, Debtor and Collateral Agent have caused this
Agreement to be duly executed and delivered by their officers thereunto duly
authorized as of the date first written above.
BANK OF AMERICA NATIONAL TRUST BANNER'S CENTRAL ELECTRIC,
AND SAVINGS ASSOCIATION, as INC., a California corporation
Collateral Agent
By:__________________________ By:___________________________
Its:_________________________ Its:__________________________
Notice Address: Notice Address:
BANK OF AMERICA NATIONAL TRUST BANNER'S CENTRAL ELECTRIC,
AND SAVINGS ASSOCIATION INC.
Agency Management Services #5596 5480 East Ferguson Drive
1455 Market Street, 12th Floor Commerce, California 90022
San Francisco, CA 94103
Attn: Daniel G. Farthing, V.P. Attn: Stephen D. Olson
Telephone: (415) 436-3431 Telephone: (213) 748-9701
Facsimile: (415) 436-2700 Facsimile:___________________
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<PAGE> 14
SCHEDULE A
TO
SECURITY AGREEMENT
PART A
Chief Executive Office
1810 South Broadway
Los Angeles, California
PART B
Inventory and Equipment Locations
1810 South Broadway
Los Angeles, California
2263 East Vernon Avenue
Vernon, California
6051 Pacific Boulevard
Huntington Park, California
Unocal Gas Station
1900 South Broadway
Los Angeles, California
PART C
Books and Records Locations
1810 South Broadway
Los Angeles, California
6051 Pacific Boulevard
Huntington Park, California
400 South Hope Street
Suite 2000
Los Angeles, California
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<PAGE> 15
PART D
Trade Names
Banner's
Banner's Inc.
Central Electric
Central Electric Co.
Central Electric Company
Central Furniture, TV, Appliances
- 15 -
<PAGE> 1
Exhibit 10.22
ADOPTION AGREEMENT
FOR THE QUALIFIED BENEFITS, INC. REGIONAL PROTOTYPE
NON-STANDARDIZED PROFIT SHARING PLAN AND TRUST
The QUALIFIED BENEFITS, INC. Regional Prototype Non-Standardized
Profit Sharing Plan and Trust ("the Plan and Trust") is hereby adopted by
Banner's, A California Corporation dba Central Electric Company (hereinafter
"the Employer") effective as of November 1, 1989 ("the Effective Date"). The
Plan and Trust as applicable to the Employer shall be known as: Banner's, A
California Corporation dba Central Electric Company Profit Sharing Plan.
( ) a. The Plan and Trust is an amendment of a preexisting Plan which
was originally effective as of____/____/____.
(X) b. The Plan and Trust is a restatement of a preexisting Plan
which was originally effective as of November 1, 1986.
*** CAUTION ***
FAILURE TO FILL OUT THE ADOPTION AGREEMENT PROPERLY MAY
RESULT IN DISQUALIFICATION OF THE PLAN
PART I. The following identifying information pertains to the Employer and the
Plan and Trust:
1. Employer Address : 1810 So. Broadway
Los Angeles, CA 90015
2. Employer Telephone : (213)748-9901
3. Employer Tax ID : 95-2090120
4. Employer Fiscal Year : November 1 to October 31
5. Three Digit Plan Number : 002
6. Plan ID Number : 95-2090120
7. Trust ID Number : 95-2090120
8. Plan Fiscal Year (must : November 1 to October 31
be 12 consecutive mos.)
9. Short Initial Plan Year : N/A
- 1 -
<PAGE> 2
10. Plan Agent : Banner's, A California Corporation
dba
Central Electric Company
1810 So. Broadway
Los Angeles, CA 90015
11. Plan Administrator : Banner's, A California Corporation
dba
Central Electric Company
1810 So. Broadway
Los Angeles, CA 90015
12. Plan Administrator : 95-2090120
ID Number
13. Plan Trustees : Wells Fargo Bank
333 So. Grand Avenue, Suite 540
Los Angeles, CA 90071
14. IRS Determination : January 7, 1991
Letter Date
15. IRS File Folder Number : 950085996
16. Legal Organization of Employer:
( ) a. Sole Proprietorship
( ) b. Partnership
(X) c. C Corporation
( ) d. Not for Profit Corporation
( ) e. S Corporation
( ) f. Other - Explain:
17. Business Code : 5398
18. Other Members of a Controlled Group or Affiliated Service Group:
(If any, each member should sign Adoption Agreement or otherwise satisfy
applicable participation requirements.)
- 2 -
<PAGE> 3
PART II. The Plan contains certain predetermined design features intended to
provide the statutory requirement or most commonly adopted feature but permits
the selection of alternative features. If an Employer desires to retain the
predetermined design feature, select the provision designated Plan Provision.
If an alternative design feature is desired, select the appropriate provision.
Unless specifically provided to the contrary, only one selection may be made
for each design category. Section references are to relevant Plan Sections.
Defined terms have the meanings provided in the Plan.
A. Eligibility and Service Provisions
1. Eligible Employees - Section 1.2.17 provides that all employees,
including employees of certain related businesses and leased employees
are eligible except for certain union members and non-resident aliens.
(Specify all applicable)
(X) a. Plan Provision
( ) b. Include members of collective bargaining unit
( ) c. Exclude self-employed persons
( ) d. Exclude Employees not employed by the Employer
( ) e. Exclude commissioned Employees
( ) f. Exclude hourly Employees
( ) g. Exclude salaried Employees
( ) h. Other - Specify. (Cannot discriminate in favor of Highly
Compensated Employees).
2. Eligibility Requirements (See Section 2.1.1) - An Employee is eligible
to participate if he satisfies the following requirements during the
Eligibility Computation Period. (Specify as many as are applicable):
( ) a. Date of hire, i.e. no age or service required (no other
choices may be selected)
(X) b. Minimum Age of 18 years (Not to exceed 21, partial years may
be used)
(X) c. Minimum of 6 months of service (Cannot require more than 24
months, or more than 12 months if full vesting after not more
than 2 Years of Service is not selected; if periods other
than whole years are selected an Employee cannot be required
to complete any specified number of Hours of Service to
receive credit for the fractional year)
( ) d. Hours of Service required (cannot exceed 1000)
( ) e. Employed on _____/____/____. (For new plans only, select an
additional option if this provision is selected)
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<PAGE> 4
3. Eligibility Computation Period - Section 1.2.16 provides that the
eligibility computation period begins on the date of hire and the
subsequent periods commence on each annual anniversary of such date.
(Select one)
( ) a. Plan Provision
(X) b. If an Employee fails to satisfy the eligibility requirements
during the initial eligibility computation period, the
eligibility computation period shall be the Plan Year
beginning with the first Plan Year commencing prior to the
first anniversary of the employment commencement date.
NOTE: The Eligibility Computation Period and the Break in Service
computation period for purposes of eligibility to participate must be
the same.
4. Hour of Service - Section 1.2.24 provides that service will be
credited on the basis of actual hours for which the employee is paid
or entitled to payment. If records of actual hours are not maintained,
credit is given on the basis of: (Select one)
(X) a. Plan Provision - Records are maintained
( ) b. Days Worked - An Employee will be credited with 10 Hours of
Service if he is credited with at least 1 Hour of Service
during the day
( ) c. Weeks Worked - An Employee will be credited with 45 Hours of
Service if he is credited with at least 1 Hour of Service
during the week
( ) d. Semi-Monthly Payroll Period - An Employee will be credited
with 95 Hours of Service if he is credited with at least 1
Hour of Service during the payroll period
( ) e. Months worked - An Employee will be credited with 190 Hours
of Service if he is credited with at least 1 Hour of Service
during the month
5. Entry Date - Section 2.1.2 provides that an Employee who satisfies any
eligibility requirements enters the Plan on the Entry Date. For this
purpose the Entry Date is the: (Select one)
( ) a. First day of next Plan Year or _______ months (Not to exceed
6) after satisfying the eligibility requirements, if earlier
( ) b. First day of ______ month (Not more than 6 after satisfying
eligibility requirements or the first day of the next Plan
Year, if earlier
( ) c. Date of satisfying the eligibility requirements
( ) d. First day of Plan Year in which the eligibility requirements
are satisfied
- 4 -
<PAGE> 5
(X) e. First day of Plan Year nearest to the date the eligibility
requirements are satisfied
( ) f. Semiannual - ( ) first or ( ) last day of 6 month periods,
beginning with first of Plan Year, coincident with or after
satisfying eligibility requirements
( ) g. Quarterly - ( ) first or ( ) last day of 3 month periods,
beginning with first of Plan Year, coincident with or after
satisfying eligibility requirements
( ) h. Monthly - ( ) first or ( ) last day of each month of the Plan
Year, coincident with or after satisfying eligibility
requirements
NOTE: The Entry Date should be coordinated with the Compensation
measuring period.
6. Break in Service - Section 1.2.6 provides that a Break in Service
occurs if an Employee fails to complete more than 500 hours of service
during the applicable computation period. (Select one)
(X) a. Plan Provision
( ) b. A Break will occur if the Employee fails to complete more
than _________ (Not to exceed 500) Hours of Service
7. Break in Service Computation Period - For the purpose of determining a
Break in Service Section 1.2.6 provides that the Employer may select
the break computation period. For eligibility to participate, the
break computation period is (Select one):
(X) a. The Plan Year
( ) b. The Eligibility Computation Period
For vesting purposes, the break computation period is (Select one):
(X) a. The Plan Year
( ) b. The Eligibility Computation Period
NOTE: The computation period for measuring Years of Service and
Breaks in Service for vesting purposes must be the same.
- 5 -
<PAGE> 6
B. Dating Provisions
1. Anniversary Date - Section 1.2.3 provides that the Anniversary Date is
the last day of the Plan Year unless another date is specified.
(Select one)
(X) a. Plan Provision - No other date is specified.
( ) b. The first day of the Plan Year.
( ) c. Other - Specify. (Must be at least annually)
2. Valuation Date - Section 1.2.48 provides that the Valuation Date is
the Anniversary Date and any other date specified. (Select one)
(X) a. Plan Provision - No other date is specified.
( ) b. Semiannually on the last day of each 6 month period beginning
with the first of the Plan Year
( ) c. Quarterly on the last day of each 3 month period beginning
with the first of the Plan Year
( ) d. Monthly on the last day of each month of the Plan Year
( ) e. Other - Specify. (Must be at least annually)
3. Normal Retirement Date - Section 1.2.32 permits the adoption of a
Normal Retirement Date. (Select one)
( ) a. Date Normal Retirement Age is attained
( ) b. First day of month in which Normal Retirement Age is attained
( ) c. First day of month nearest date Normal Retirement Age is
attained
( ) d. First day of month coincident with or next following the date
Normal Retirement Age is attained
(X) e. Anniversary Date nearest date Normal Retirement Age is
attained
( ) f. Anniversary Date coincident with or next following date
Normal Retirement Age is attained
4. Normal Retirement Age - For each Participant the Normal Retirement Age
is:
( ) a. Age _____ (not to exceed 65)
(X) b. The later of age 65 (not to exceed 65) or the 5th (not to
exceed the fifth (5th)) anniversary of the participation
commencement date, if later. The participation commencement
date is the first day of the Plan Year in which a Participant
commenced participation in the Plan.
- 6 -
<PAGE> 7
5. Early Retirement Date - See Section 1.2.14: (Select one)
(X) a. The Plan does not provide an early retirement date
( ) b. The actual date the Participant attains the Early Retirement
Age
( ) c. The Anniversary Date coincident with or next following the
date the Participant attains the Early Retirement Age
( ) d. The Valuation Date coincident with or next following the date
the Participant attains the Early Retirement Age
( ) e. The last day of the month coincident with or next following
the date the Participant attains the Early Retirement Age
( ) f. Other - Specify. (Cannot discriminate in favor of Highly
Compensated Employees)
6. Early Retirement Age: (Select all applicable)
( ) a. Age _____ (not to exceed 65)
( ) b. _____ Years of Service
( ) c. _____ Years of Service while a Participant
( ) d. _____ Years prior to the Normal Retirement Age
NOTE: Cannot discriminate in favor of Highly Compensated Employees.
C. Compensation
1. Compensation - See Section 1.2.8. For purposes of the Plan a
Participant's compensation is based on the Limitation Year and shall:
(Select all applicable)
(X) a. Statutory: Include all compensation paid
( ) b. Include compensation which is not includable in gross income
by reason of Code 125, 402(a)(8), 402(h)(1)(B) or 403(b)
( ) c. Exclude compensation which is for overtime
( ) d. Exclude compensation which is for commissions
( ) e. Exclude compensation which is for discretionary bonuses
( ) f. Exclude compensation which is for all bonuses
( ) g. Exclude compensation which is for taxable employee benefits
( ) h. Exclude compensation in excess of $______________
( ) i. Other exclusion - Specify. (Cannot discriminate in favor of
Highly Compensated Employees)
NOTE: Exclusions are permissible if the Plan is not integrated with
Social Security. Exclusions may cause the Plan to be impermissibly
discriminatory.
- 7 -
<PAGE> 8
2. For the initial year of participation, include Compensation from:
(Select one)
( ) a. Entry Date as a Participant
(X) b. First day of the Plan Year
NOTE: The Compensation taken into account should be coordinated with
the Entry Date.
D. Contribution and Allocation
1. Contribution Formula - The Employer's contribution to the Plan shall
be: (Select one)
( ) a. Discretionary, out of profits
(X) b. Discretionary, but not limited to profits
( ) c. _________% of each Participant's Compensation. (Generally
should not exceed 15% of total Compensation)
2. Allocation Method - The Employer contribution is allocated to
Participants: (Select one)
(X) a. Proportionate to Salary. Based upon each Participant's
Compensation in proportion to the Compensation of all
Participants.
( ) b. Integrated with Social Security. Based each Year on each
Participant's Compensation to the extent of a base
contribution percentage multiplied by the Participant's
Compensation plus the lesser of 5.7% or the base contribution
percentage multiplied by the Participant's Compensation in
excess of the Social Security Integration Level and any
remainder is allocated based upon each Participant's
Compensation in proportion to the Compensation of all
Participants.
- 8 -
<PAGE> 9
The Social Security Integration Level is equal to:
( ) c. The Social Security Wage Base in effect as of the first day
of the Plan Year.
( ) d. $_______ (Not to exceed the Social Security Wage Base in
effect as of the first day of the Plan Year).
( ) e. ________% (Not to exceed 100) of the Social Security Wage
Base in effect as of the first day of the Plan Year.
( ) f. The greater of $10,000 or 20% of the Social Security Wage
Base in effect as of the first day of the Plan Year.
NOTE: The Employer Contribution allocable to Compensation in excess
of the Social Security Integration Level (SSIL) may not exceed 5.4% if
the SSIL is more than 80% but less than 100% of the Social Security
Wage Base (SSWB), and may not exceed 4.3% if the SSIL is greater than
20% of the SSWB, but not more than 80% of the SSWB, and greater than
$10,000.
3. Requirement to Share in Contribution Allocation. In order to share in
the allocation of the Employer's Contribution a Participant: (Select
all applicable)
(X) a. Is eligible regardless of Hours of Service if the Employee
dies during the Plan Year
(X) b. Is eligible regardless of Hours of Service if the Employee
retires during the Plan Year
(X) c. Is eligible regardless of Hours of Service if the Employee
becomes totally disabled during the Plan Year
(X) d. Must complete 1,000 (May not require in excess of 1000) Hours
of Service during Plan Year
(X) e. Must be employed at Plan Year end
4. Limitation Year - Section 1.2.29 provides that the Limitation Year for
purposes of the limitation imposed by IRC Section 415 is the Plan
Year. (Select one)
(X) a. Plan Provision
( ) b. Calendar year coinciding with or ending within the Plan Year
NOTE: Compensation is based on the Limitation Year and should be
coordinated with the Entry Date.
- 9 -
<PAGE> 10
E. Vesting Provisions
1. Years of Service - Section 1.2.50 provides that a Year of Service is
any Plan Year (including years prior to the effective date) in which
at least 1000 Hours of Service are performed. It also includes the
eligibility computation period during which the employee completes the
eligibility requirements which overlaps Plan Years if 1000 Hours of
Service are not performed in at least one Plan Year. (Select all
applicable)
(X) a. Plan Provision
( ) b. Use Eligibility Computation Period in lieu of Plan Year
( ) c. Use _____ in lieu of 1000 Hours of Service (Not to exceed 1000
hours)
2. Excluded Years - Section 1.2.50 provides that all Years of Service are
taken into account.
(X) a. Plan Provision - Include all Years of Service
( ) b. Exclude Plan Years prior to age 18
( ) c. Exclude Plan years prior to adoption of plan or predecessor
plan. Date of adoption: __ / __ / __
3. Vesting Schedule - Section 2.4.2(f) provides that benefits will vest
in accordance with the method specified in the Adoption Agreement.
Employer Accounts:
(X) a. At the rate of 20% each year after 3 Years of Service. (20%
vested in third year)
( ) b. At the rate of 20% each year after 2 Years of Service. (20%
vested in second year)
( ) c. 100% vesting upon participation.
( ) d. 100% vesting after ______ Year(s) of Service (Not to exceed
5)
( ) e. 100% vesting at Early Retirement Date (Must also select
another alternative)
( ) f. Other: (Optional vesting schedule must be at least as
favorable as a. or d.)
<TABLE>
<CAPTION>
Year(s) of Service Percent Vesting
<S> <C>
Less than 1 __________
1 but less than 2 __________
2 but less than 3 __________
3 but less than 4 __________
4 but less than 5 __________
5 but less than 6 __________
6 but less than 7 __________
7 or More __________
</TABLE>
- 10 -
<PAGE> 11
4. Top Heavy Vesting Schedule - Section 2.6.1(b) provides that if the
Plan becomes Top Heavy, unless the Employer specifies otherwise,
vesting will be at a rate of 20% per year beginning with the second
Year of Service.
Employer Accounts:
(X) a. Plan Provision
( ) b. 100% vested after _____ Year(s) of Service (Not to exceed 3)
( ) c. Other: (Optional vesting schedule must be at least as
favorable as a. or b.)
<TABLE>
<CAPTION>
Year(s) of Service Percent Vesting
<S> <C>
Less than 1 __________
1 but less than 2 __________
2 but less than 3 __________
3 but less than 4 __________
4 but less than 5 __________
5 but less than 6 __________
6 but less than 7 __________
7 or More __________
</TABLE>
5. Re-employment - Section 2.4.4 provides that Years of Service completed
after a Break in Service are not counted for purposes of increasing
the vested percentage attributable to service before the Break unless
reemployed within 5 years.
(X) a. Plan Provision
( ) b. Count all service after the Break.
6. Distribution Date - Subject to the necessity of obtaining the consent
of a Participant and spouse, Section 2.4.5 provides that if the
Participant is not fully vested, the Distribution Date is postponed
until the last day of the 5th consecutive Plan Year in which the
Participant incurs a Break in Service.
( ) a. Plan Provision
(X) b. The Distribution Date is advanced to the last day of the Plan
Year in which the Participant incurs a Break in Service.
( ) c. The Distribution Date is advanced to the last day of the Plan
Year following termination of employment without regard to
Break in Service.
( ) d. The Distribution Date is advanced to the Plan Year following
the Year in which termination of employment occurs without
regard to Break in Service.
- 11 -
<PAGE> 12
7. Forfeitures -- Section 2.4.6 provides that forfeitures are allocated as
of the last day of the Plan Year in which the Participant's entire
interest is distributed from the Plan.
(X) a. Plan Provision.
( ) b. Allocate in Plan Year of 5th consecutive Break in Service.
( ) c. Not applicable - All benefits are fully vested.
8. Forfeitures shall be reallocated to participants:
( ) a. In the same manner as Employer Contributions.
(X) b. In proportion to participant's Compensation (Non-integrated
plans only).
9. Forfeitures shall be applied to: (Select one)
(X) a. Supplement the Employer Contribution
( ) b. Reduce the Employer Contribution
10. Restoration of Forfeitures - If a Participant is entitled to a
restoration of a forfeiture, the amount to be restored shall be
restored by:
( ) a. An additional contribution by the Employer specifically
allocated to the Participant's Account.
(X) b. Allocating other forfeitures arising in the year of
restoration to the Participant's Account.
F. Distribution Provisions
1. Form of Distributions - Section 2.5.2 provides that the Employer may
elect to permit Plan distributions to be made in the form of: (Select
all applicable)
(X) a. Lump sum without regard to amount.
( ) b. Lump sum but not to exceed $___________.
(X) c. Installments over 20 years payable: (Select one or more)
(X) c.1. annually
(X) c.2. quarterly
(X) c.3. monthly
( ) d. An annuity for not more than ________ years
(X) e. An annuity for the life of: (Select one or more)
(X) e.1. the Participant
(X) e.2. the Participant and spouse
(X) e.3. the Participant and a designated beneficiary
( ) f. An annuity for _____ years certain and thereafter for the life
of:
(Select one or more)
( ) f.1. the Participant
( ) f.2. the Participant and spouse
( ) f.3. the Participant and a designated beneficiary
Continued . . .
- 12 -
<PAGE> 13
(X) g. An annuity for a period certain selected by the Participant
that is less than the life of: (Select one or more)
(X) g.1. the Participant
(X) g.2 the Participant and spouse
(X) g.3. the Participant and a designated beneficiary
NOTE: Any number of options may be selected. Once selected, however,
any option may not thereafter be eliminated.
If an annuity option of life or longer is selected Qualified Joint and
Survivor Annuity provisions are required.
2. Survivor Annuity Percentage - If a Joint and Survivor Annuity is
payable, Section 1.2.26 provides that the normal survivor annuity is
50% of the amount payable during the joint lives of the participant
and spouse, unless the Employer elects a different percentage (Select
one):
(X) a. Plan Provision - 50%
( ) b. Other Percentage - _____ % (Not less than 50% nor more than
100%)
3. Time of Distribution - Section 2.5.1(b) provides that distributions
are deferred to Participants who resign or are discharged prior to
retirement until the retirement date. Section 2.5.4 also provides
that an employer may elect to permit distributions in advance of such
date.
( ) a. Plan Provision without advance distribution election.
(X) b. Permit advance distributions per Section 2.5.4.
4. In Service Distributions - Section 2.5.5 provides that an Employer may
permit distributions to fully vested Participants if the amounts
withdrawn have been allocated to the Participant for two (2) or more
years or the Participant has been a Participant for at least five (5)
years. (Select all applicable)
( ) a. Plan Provision.
( ) b. Require that amounts have been allocated for years. (Must be
at least 2)
( ) c. Require participation for at least ______ years. (Must be at
least 5)
(X) d. In Service Distributions are not permitted.
- 13 -
<PAGE> 14
5. Qualified Domestic Relations Orders - Section 3.12.9 provides that the
Employer may elect to permit distributions to an alternate payee
pursuant to the terms of a qualified domestic relations order even if
the Participant continues to be employed. (Select one)
( ) a. Distributions to an alternate payee are not permitted while
the Participant continues to be employed.
(X) b. Distributions to an alternate payee are permitted while the
Participant continues to be employed.
G. Other Administrative Provisions
1. Earnings - Section 3.1.2 permits the Employer to specify the manner in
which earning are allocated to Participants who receive distributions
on any date other than a Valuation Date. Select any of the following:
(X) a. Earnings will be credited solely as of the immediately
preceding Valuation Date.
( ) b. Actual earnings will be credited to the date of distribution.
( ) c. Earnings will be credited solely as of the immediately
preceding Valuation Date if distribution is within ______ days
of such Valuation Date and will be credited to date of
distribution otherwise.
( ) d. Earnings will be credited to the date of distribution based
upon an estimate of earnings equal to ______% annually.
( ) e. Earnings will be credited to the date of distribution based
upon an estimate of earnings equal to the average rate of
earnings during the preceding
( ) e.1. Valuation Period.
( ) e.2. Plan Year.
( ) e.3 ______ Valuation Periods.
2. Loans -- Section 3.7.1 provides that the Employer may elect to permit
loans to Participants and Beneficiaries in accordance with a
participant loan program adopted by the Trustee.
(X) a. Loans are permitted.
( ) b. Loans are not permitted.
3. Investment Control - Section 3.6.5 provides that the Employer may
elect to permit Participants to control the investment of their
Accounts.
(X) a. Participants may not control their investments.
( ) b. Participants may control the investment of their Accounts if
fully vested in the Account.
( ) c. Participants may control the investment of their Accounts to
the extent vested.
Continued . . .
- 14 -
<PAGE> 15
( ) d. Participants may control their investments without regard to
their vested interest.
( ) e. Participants may control their investments solely with
respect to amounts attributable to: (Select all applicable)
( ) e.1. Employer Contributions
( ) e.2. Voluntary Contributions
4. The interest rate used to establish the Present Value of Accrued
Benefits in order to calculate the top heavy ratio under IRC Section
416 shall be ______% and the mortality tables used shall be
____________________________________. (Applies only if you also have a
Defined Benefit plan)
5. Valuation Date - For purposes of computing the top-heavy ratio, the
Valuation Date is (Select one):
( ) a. the first day of Plan Year.
(X) b. the last day of the Plan Year.
( ) c. Other - Specify. ____/____ (Must be at least annually)
6. Single Plan Minimum Top-Heavy Allocation - For purposes of minimum
top-heavy allocations, contributions and forfeitures equal to the
following percentage of each non-Key Employee's compensation will be
allocated to the Employee's account when the Plan is top-heavy (Select
one):
(X) a. 3% or the highest percentage allocated to any Key Employee if
less.
( ) b. ______% (Must be at least 3).
7. Multiple Plans Provision - The Employer which maintains or ever
maintained another qualified defined benefit plan or welfare benefit
fund or individual medical account in which any participant in the
Plan is, was or could become a participant adds the following optional
provision which it deems necessary to satisfy Section 415 or 416 of
the Code because of the required aggregation of multiple plans:
(Select one)
(X) a. Not applicable.
( ) b. A minimum contribution allocation of 5% of each Non-Key
Participant's total compensation shall be provided in a
defined contribution plan of the Employer.
Continued...
- 15 -
<PAGE> 16
( ) c. A minimum contribution allocation of 7.5% of each Non-Key
Participant's total compensation shall be provided in a
defined contribution plan of the Employer.
( ) d. Other - Specify.
NOTE: The method selected must preclude Employer discretion and the
Employer must obtain a determination letter in order to continue
reliance on the Plan's qualified status.
8. Multiple Defined Contribution Plans - If the Participant is covered
under another qualified defined contribution plan maintained by the
Employer, other than a master or prototype plan: (Select one)
(X) a. Not applicable.
( ) b. The provisions of this Plan limiting annual additions will
apply as if the other plan is a master or prototype plan.
( ) c. Other - Specify.
NOTE: Specify the method under which the plans will limit total
annual additions to the maximum permissible amount, and will properly
reduce any excess amounts in a manner that precludes Employer
discretion.
9. Top Heavy Duplications - The Employer who maintains two or more
Defined Contribution plans makes the following election:
(X) a. Not applicable.
( ) b. A minimum non-integrated contribution of 3% of each Non-Key
Participant's Compensation shall be provided by:
( ) b.1. this Plan.
( ) b.2. the following defined contribution plan:
_________________________________________________
( ) c. Other - Specify.
NOTE: The method selected must preclude Employer discretion and avoid
inadvertent omissions, including any adjustments required under Code
Section 415(e). The Employer must obtain a determination letter in
order to continue reliance on the Plan's qualified status.
- 16 -
<PAGE> 17
10. Compensation Definition. For purposes of calculating an Employee's
compensation pursuant to Section 3.2.1(h), relating to limitations on
contributions and benefits, Compensation means all of each
Participant's
( ) a. Section 3121(a) wages.
( ) b. Section 3401(a) wages.
(X) c. Section 415 safe harbor compensation.
- 17 -
<PAGE> 18
The name, address and telephone number of the Plan Sponsor is:
QUALIFIED BENEFITS, INC.
21021 VENTURA BLVD., SUITE 200
WOODLAND HILLS, CA 91364
818-594-4900
The Plan Sponsor will inform the Employer of any amendments made to the Plan or
of the discontinuance or abandonment of the Plan.
NOTE: An employer may not rely on an opinion letter issued by the National
Office of the Internal Revenue Service as evidence that the plan as adopted is
qualified under Section 401 of the Internal Revenue Code. In order to obtain
reliance with respect to plan qualification, the employer must apply to the
appropriate key district for a determination letter.
This Adoption Agreement may be used only in conjunction with the QUALIFIED
BENEFITS, INC. Regional Prototype Non-Standardized Profit Sharing Plan and
Trust No. 03, Revised 08/30/90.
* * *
The Employer and Trustee hereby adopt the Plan and Trust as evidenced by the
foregoing Adoption Agreement on this 6 day of November, 1992.
<TABLE>
<S> <C>
/s/ KR REID 12/15/92
HELEN LIU
Banner's, A California Corporation ASSISTANT VICE PRESIDENT
dba Central Electric Company /s/ H. LIU AND TRUST OFFICER
- ------------------------------------ --------------------------------
Employer Trustee
Wells Fargo Bank
By: /s/ GARY ???????
- ------------------------------------ --------------------------------
Title - President
N/A
--------------------------------
Trustee
N/A
- ------------------------------------
Affiliate Employer
By: N/A N/A
- ------------------------------------ --------------------------------
Title Trustee
</TABLE>
- 18 -
<PAGE> 19
QUALIFIED BENEFITS, INC. REGIONAL PROTOTYPE
NON-STANDARDIZED PROFIT SHARING PLAN AND TRUST
I N D E X
PART I
<TABLE>
<CAPTION>
ARTICLE DESCRIPTION PAGE
<S> <C> <C>
I INTRODUCTION 1
1.1.1 Creation and Title 1
1.1.2 Effective Date 1
1.1.3 Purpose 1
II DEFINITIONS 2
</TABLE>
Revised 08/30/90
<PAGE> 20
PART II
<TABLE>
<CAPTION>
ARTICLE DESCRIPTION PAGE
<S> <C> <C>
I PARTICIPATION 12
2.1.1 Eligibility Requirements 12
2.1.2 Commencement of Participation 12
2.1.3 Participation Upon Re-Employment 12
2.1.4 Termination of Participation 12
2.1.5 Determination of Eligibility 12
2.1.6 Omission of Eligible Employee 13
2.1.7 Inclusion of Ineligible Participant 13
2.1.8 Existing Participants 13
2.1.9 Change in Status 13
II CONTRIBUTIONS 14
2.2.1 Employer Contributions 14
2.2.2 Employee Contributions 14
2.2.3 Return of Contributions 15
III ALLOCATIONS 16
2.3.1 Basic Allocation 16
2.3.2 Minimum Allocation 16
IV BENEFITS 17
2.4.1 Distributable Benefit 17
2.4.2 Vesting 17
2.4.3 Leave of Absence 18
2.4.4 Re-Employment 18
2.4.5 Distribution Date 18
2.4.6 Forfeitures 19
V DISTRIBUTIONS 21
2.5.1 Commencement of Distribution 21
2.5.2 Method of Distribution 27
2.5.3 Nature of Distributions 36
2.5.4 Advance Distributions 37
2.5.5 In Service Distributions 39
VI CONTINGENT TOP HEAVY PROVISIONS 40
2.6.1 Top Heavy Requirements 40
2.6.2 Top Heavy Definitions 41
</TABLE>
<PAGE> 21
PART III
<TABLE>
<CAPTION>
ARTICLE DESCRIPTION PAGE
<S> <C> <C>
I ACCOUNTING 48
3.1.1 Accounts 48
3.1.2 Adjustments 48
II LIMITATIONS 51
3.2.1 Limitations on Annual Additions 51
3.2.2 Controlled Businesses 58
III FIDUCIARIES 60
3.3.1 Standard of Conduct 60
3.3.2 Individual Fiduciaries 60
3.3.3 Disqualification from Service 60
3.3.4 Bonding 60
3.3.5 Prior Acts 60
3.3.6 Insurance and Indemnity 60
3.3.7 Expenses 61
3.3.8 Agents, Accountants and Legal Counsel 61
3.3.9 Investment Manager 61
3.3.10 Finality of Decisions or Acts 62
3.3.11 Certain Custodial Account
and Contracts 62
IV PLAN ADMINISTRATOR 63
3.4.1 Administration of Plan 63
3.4.2 Disclosure Requirements 64
3.4.3 Information Generally Available 64
3.4.4 Statement of Accrued Benefit 65
3.4.5 Explanation of Rollover Treatment 65
V TRUSTEE 66
3.5.1 Acceptance of Trust 66
3.5.2 Trustee Capacity - Co-Trustee 66
3.5.3 Resignation, Removal and Successors 66
3.5.4 Consultations 66
3.5.5 Rights, Powers and Duties 67
3.5.6 Trustee Indemnification 69
3.5.7 Changes in Trustee Authority 69
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
ARTICLE DESCRIPTION PAGE
<S> <C> <C>
VI TRUST ASSETS 70
3.6.1 Trustee Exclusive Owner 70
3.6.2 Investments 70
3.6.3 Administration of Trust Assets 72
3.6.4 Segregated Funds 73
3.6.5 Investment Control Option 74
VII LOANS 76
3.7.1 Authorization 76
3.7.2 Spousal Consent 76
3.7.3 Limitations 77
3.7.4 Availability 77
3.7.5 Prohibitions 77
VIII BENEFICIARIES 78
3.8.1 Designation of Beneficiaries 78
3.8.2 Absence or Death of Beneficiaries 78
IX CLAIMS 79
3.9.1 Claim Procedure 79
3.9.2 Appeal 79
X AMENDMENT AND TERMINATION 81
3.10.1 Right to Amend 81
3.10.2 Manner of Amending 81
3.10.3 Limitations On Amendments 81
3.10.4 Voluntary Termination 82
3.10.5 Involuntary Termination 82
3.10.6 Withdrawal By Employer 82
3.10.7 Powers Pending Final Distribution 83
3.10.8 Delegation to Sponsor 83
XI PORTABILITY 84
3.11.1 Continuance by Successor 84
3.11.2 Merger With Other Plan 84
3.11.3 Transfer From Other Plans 84
3.11.4 Transfer to Other Plans 85
</TABLE>
<PAGE> 23
<TABLE>
<CAPTION>
ARTICLE DESCRIPTION PAGE
<S> <C> <C>
XII MISCELLANEOUS 86
3.12.1 No Reversion to Employer 86
3.12.2 Employer Actions 86
3.12.3 Execution of Receipts and Releases 86
3.12.4 Rights of Participants Limited 86
3.12.5 Persons Dealing With Trustee Protected 86
3.12.6 Protection of Insurer 87
3.12.7 No Responsibility for Act of Insurer 87
3.12.8 Inalienability 87
3.12.9 Domestic Relations Orders 88
3.12.10 Authorization to Withhold Taxes 90
3.12.11 Missing Persons 90
3.12.12 Notices 90
3.12.13 Governing Law 90
3.12.14 Severability of Provisions 91
3.12.15 Gender and Number 91
3.12.16 Binding Effect 91
3.12.17 Qualification Under Internal
Revenue Laws 91
</TABLE>
<PAGE> 24
PART I
ARTICLE I
INTRODUCTION
1.1.1 Creation and Title. The Employer and the Trustee
hereby create a Plan and Trust to be known by the name set forth in the
Adoption Agreement.
1.1.2 Effective Date. The provisions of this Plan and
Trust shall be effective as of the Effective Date set forth in the Adoption
Agreement.
1.1.3 Purpose. This Plan and Trust is established for the
purpose of providing retirement benefits to eligible Employees in accordance
with the Plan and the Adoption Agreement.
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<PAGE> 25
ARTICLE II
DEFINITIONS
As used in this Plan and the Adoption Agreement, the following
terms shall have the following meanings:
1.2.1 "Account": The Employer Account, Controlled Accounts,
Voluntary Account, or Segregated Account of a Participant, as the context
requires, established and maintained for accounting purposes.
1.2.2 "Act": The Employee Retirement Income Security Act of
1974, as amended from time to time.
1.2.3 "Anniversary Date": Unless otherwise specified in the
Adoption Agreement, the last day of each Plan Year.
1.2.4 "Beneficiary": The person or persons entitled to
receive the benefits which may be payable upon or after a Participant's death.
1.2.5 "Board of Directors": The board of directors of an
incorporated Employer.
1.2.6 "Break in Service": The failure of a Participant to
complete more than five hundred (500) Hours of Service during any 12
consecutive month computation period, beginning with a Participant's first
computation period after becoming a Participant. The computation period shall
be specified by the Employer in the Adoption Agreement. A Year of Service and
a Break in Service for vesting purposes shall be measured on the same
computation period.
1.2.7 "Code": The Internal Revenue Code of 1986, as amended
from time to time.
1.2.8 "Compensation": Unless otherwise specified in the
Adoption Agreement, all of a Participant's (a) W-2 compensation or (b)
compensation as that term is defined in Section 415(c)(3) of the Code (or
Earned Income in the case of a self-employed individual) which is actually paid
to the Participant by the Employer during the applicable period specified by
the Employer in the Adoption Agreement (or, if no period is specified, during
the Plan Year); provided that if specified by the Employer in the Adoption
Agreement, compensation shall also include any amount which is contributed by
the Employer pursuant to a salary reduction agreement and which is not
includible in the gross income of the Employee under Sections 125, 402(a)(8),
402(h) or 403(b) of the Code; provided further that for years beginning after
December 31, 1988, the annual gross compensation taken into account for
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<PAGE> 26
purposes of the Plan shall not exceed $200,000, as such amount may be adjusted
by the Secretary of the Treasury at the same time and in the same manner as
under Section 415(d) of the Code, except that the dollar increase in effect on
January 1 of any calendar year is effective for years beginning in such
calendar year and the first adjustment to the $200,000 limitation is effected
on January 1, 1990. If a plan determines compensation on a period of time that
contains less than twelve (12) calendar months, then the annual compensation
limit is an amount equal to the annual compensation limit for the calendar year
in which the compensation period begins multiplied by the ratio obtained by
dividing the number of full months in the period by 12. For purposes of this
dollar limitation, the rules of Section 414(q)(6) of the Code requiring the
aggregation of the compensation of family members shall apply, except that in
applying such rules, the term "family" shall include only the spouse of the
Participant and any lineal descendants of the Participant who have not attained
age nineteen (19) before the close of the year. If, as a result of the
application of such rules the adjusted $200,000 limitation is exceeded, then
(except for purposes of determining the portion of compensation up to the
Social Security Integration Level if this Plan provides for permitted
disparity), the limitation shall be prorated among the affected individuals in
proportion to each such individual's compensation as determined under this
Section prior to the application of this limitation. If compensation for any
prior plan year is taken into account in determining an employee's
contributions or benefits for the current year, the compensation for such prior
year is subject to the applicable annual compensation limit in effect for that
prior year. For this purpose, for years beginning before January 1, 1990, the
applicable annual compensation limit is $200,000.
1.2.9 "Controlled Account": An account established and
maintained for a Participant to account for his interest in a Controlled Fund
over which he exercises investment control.
1.2.10 "Controlled Fund": Assets held in the name of the
Trustee which have been segregated pursuant to an election made by the
Participant to exercise investment control over such assets.
1.2.11 "Distributable Benefit": The benefit to which a
Participant is entitled following termination of his employment.
1.2.12 "Distribution Date": The date as of which the
Distributable Benefit of a Participant is determined.
1.2.13 "Early Retirement Age": The age specified as the
Early Retirement Age, if any, in the Adoption Agreement.
1.2.14 "Early Retirement Date": The date specified as the
Early Retirement Date, if any, in the Adoption Agreement.
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<PAGE> 27
1.2.15 "Earned Income": The net earnings from
self-employment in the trade or business with respect to which the Plan is
established for which personal services of the Participant are a material
income-producing factor. Net earnings shall be determined without regard to
items not included in gross income and the deductions allocable to such items
but, in the case of taxable years beginning after 1989, with regard to the
deduction allowed by Section 164(f) of the Code. Net earnings shall be reduced
by contributions to a qualified plan to the extent deductible under Section 404
of the Code.
1.2.16 "Eligibility Computation Period": For purposes of
determining Years of Service and Breaks in Service for purposes of eligibility,
the initial eligibility computation period is the twelve (12) consecutive month
period beginning with the employment commencement date on which the Employee
first renders an Hour of Service for the Employer and, unless otherwise
specified in the Adoption Agreement, the subsequent eligibility computation
periods are each subsequent twelve (12) consecutive month period commencing on
the first anniversary of such employment commencement date.
If in accordance with the election in the Adoption Agreement,
the subsequent periods commence with the first Plan Year which commences prior
to the first anniversary of the Employee's employment commencement date, an
Employee who is credited with 1,000 Hours of Service in both the initial
eligibility computation period and the first Plan Year which commences prior to
the first anniversary of the Employee's initial eligibility computation period
shall be credited with two (2) years of service for purposes of eligibility to
participate.
1.2.17 "Employee": A person who is currently or hereafter
employed by the Employer, or by any other employer aggregated under Section
414(b), (c), (m) or (o) of the Code and the regulations thereunder, including a
Leased Employee subject to Section 414(n) of the Code and a self-employed owner
of an unincorporated Employer, but excluding (a) an independent contractor; (b)
an employee who is a nonresident alien deriving no earned income from the
Employer which constitutes income from sources within the United States; and
(c) employees who are included in the unit of employees covered by a collective
bargaining agreement, provided that retirement benefits were the subject of
good faith negotiations.
1.2.18 "Employer": The Employer that is a party to this
Agreement, or any of its successors or assigns which adopt the Plan; provided,
however, that no mere change in the identity, form or organization of the
Employer shall affect its status under the Plan in any manner, and, if the name
of the Employer is hereafter changed, a corresponding change shall be deemed to
have been made in the name
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<PAGE> 28
of the Plan and references herein to the Employer shall be deemed to refer to
the Employer as it is then known.
1.2.19 "Employer Account": An Account established and
maintained for a Participant for accounting purposes to which his share of
Employer contributions and forfeitures are added.
1.2.20 "Entry Date": The date or dates specified as the
Entry Date in the Adoption Agreement.
1.2.21 "Excessive Annual Addition": The portion of the
allocation of contributions and forfeitures that cannot be added to a
Participant's Accounts due to the limitations on annual additions contained in
the Plan.
1.2.22 "Fiduciary": The Plan Administrator, the Trustee and
any other person who has discretionary authority or control in the management
of the Plan or the disposition of Trust assets.
1.2.23 "Highly Compensated Employee": A highly compensated
active employee and a highly compensated former employee. A highly compensated
active employee includes: any Employee who performs service for the Employer
during the determination year and who, during the look-back year: (i) received
compensation from the Employer in excess of $75,000 (as adjusted pursuant to
Section 415(d) of the Code); (ii) received compensation from the Employer in
excess of $50,000 (as adjusted pursuant to Section 415(d) of the Code) and was
a member of the top-paid group for such year; or (iii) was an officer of the
Employer and received compensation during such year that is greater than 50
percent of the dollar limitation as in effect under Section 415(b)(1)(A) of the
Code. The term highly compensated employee also includes: (i) employees who
are both described in the preceding sentence if the term "determination year"
is substituted for the term "look-back year" and the employee is one of the 100
employees who received the most compensation from the Employer during the
determination year; and (ii) employees who are 5 percent owners at any time
during the look-back year or determination year.
If no officer has satisfied the compensation requirement of
(iii) above during either a determination year or look-back year, the highest
paid officer for such year shall be treated as a highly compensated employee.
For this purpose, the determination year shall be the Plan
Year. The look-back year shall be the twelve-month period immediately
preceding the determination year.
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<PAGE> 29
A highly compensated former employee includes any employee who
separated from service (or was deemed to have separated) prior to the
determination year, performs no service for the employer during the
determination year, and was a highly compensated active employee for either the
separation year or any determination year ending on or after the employee's
55th birthday.
If an Employee is, during a Plan Year or the preceding Plan
Year, a family member of either a 5 percent owner who is an active or former
employee or a Highly Compensated Employee who is one of the 10 most highly
compensated employees ranked on the basis of compensation paid by the Employer
during such year, then the family member and the 5 percent owner or top-ten
highly compensated employee shall be aggregated. In such case, the family
member and 5 percent owner or top-ten highly compensated employee shall be
treated as a single employee receiving compensation and plan contributions or
benefits equal to the sum of such compensation and contributions or benefits of
the family member and 5 percent owner or top-ten highly compensated employee.
For purposes of this section, family member includes the spouse, lineal
ascendants and descendants of the employee or former employee and the spouses
of such lineal ascendants and descendants.
The determination of who is a highly compensated employee,
including the determination of the number and identity of employees in the
top-paid group, the top 100 employees, the number of employees treated as
officers and the compensation that is considered, will be made in accordance
with Section 414(q) of the Code and the regulations thereunder.
1.2.24 "Hour of Service": An hour for which (a) the Employee
is paid, or entitled to payment by the Employer for the performance of duties,
(b) the Employee is paid or entitled to payment by the Employer during which no
duties are performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence, or (c) back
pay, irrespective of mitigation of damages, has been either awarded or agreed
to by the Employer. Hours of Service shall be credited to the Employee under
(a), above, for the period in which the duties are performed, under (b), above,
in the period in which the period during which no duties are performed occurs,
beginning with the first Hour of Service to which the payment relates, and
under (c), above, for the period to which the award or agreement pertains
rather than the period in which the award, agreement or payment is made;
provided, however, that Hours of Service shall not be credited under both (a)
and (b), above, as the case may be, and under (c) above. Notwithstanding the
preceding sentences, (i) no more than five hundred one (501) Hours of Service
shall be credited under (b), above, on account of any single continuous period
during which the Employee performs no duties whether
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<PAGE> 30
or not such period occurs in a single computation period, (ii) no Hours of
Service shall be credited to the Employee by reason of a payment made or due
under a plan maintained solely for the purpose of complying with applicable
worker's compensation, or unemployment compensation or disability insurance
laws, and (iii) no Hours of Service shall be credited by reason of a payment
which solely reimburses an Employee for medical or medically related expenses
incurred by the Employee. The determination of Hours of Service for reasons
other than the performance of duties and the crediting of Hours of Service to
computation periods shall be made in accord with the provisions of Labor
Regulation Sections 2530.200b-2(b) and (c) which are incorporated herein by
reference.
Solely for purposes of determining whether an Employee has
incurred a Break in Service, an Employee shall be credited with the number of
Hours of Service which would otherwise have been credited to such individual
but for the absence or in any case in which such Hours cannot be determined
with eight (8) Hours of Service for any day that the Employee is absent from
work by reason of the Employee's pregnancy, the birth of a child of the
Employee, the placement of a child with the Employee in connection with the
adoption of such child by the Employee or for purposes of caring for such child
for a period beginning immediately following such birth or placement. Such
Hours of Service shall be credited only in the Plan Year in which the absence
from work begins if the Employee would be prevented from incurring a Break in
Service in such Plan Year solely because credit is given for such period of
absence and, in any other case, in the immediately following computation
period. Notwithstanding the foregoing, no credit shall be given for such
service unless the Employee furnishes to the Plan Administrator information to
establish that the absence from work is for the reasons indicated and the
number of days for which there was such an absence.
In the event the Employer does not maintain records of the
actual hours for which an Employee is paid or entitled to payment, credit for
service shall be given in accordance with the method selected in the Adoption
Agreement.
Service with another business entity that is, along with the
Employer, a member of a controlled group of corporations, an affiliated service
group or trades or businesses under common control, as defined in the
applicable sections of the Code, or which is otherwise required to be
aggregated with the Employer pursuant to Section 414(o) of the Code and the
regulations issued thereunder shall be treated as service for the Employer.
Hours of Service shall be credited for any individual considered an employee
for purposes of this Plan under Section 414(n) or Section 414(o) of the Code
and the regulations issued thereunder.
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<PAGE> 31
Except to the extent inconsistent with regulations issued by
the Secretary of the Treasury, service for a predecessor to the Employer,
whether as an employee or self-employed person, shall be treated as service for
the Employer. If the Employer maintains the plan of a predecessor employer,
service with such predecessor shall be treated as service for the Employer.
1.2.25 "Insurer": Any insurance company which has issued a
Life Insurance Policy.
1.2.26 "Joint and Survivor Annuity": An immediate annuity
for the life of the Participant with a survivor annuity for the life of the
spouse which is not less than fifty (50%) percent and not more than one hundred
(100%) percent of the amount of the annuity which is payable during the joint
lives of the Participant and the spouse and which is the amount of benefit
which can be purchased with the Participant's vested Account balances. The
percentage of the survivor annuity shall be fifty (50%) percent unless a
different percentage is elected by the Employer in the Adoption Agreement.
1.2.27 "Leased Employee": Any person (other than an employee
of the recipient) who pursuant to an agreement between the recipient and any
other person has performed services for the recipient (or for the recipient and
related persons determined in accordance with Section 414(n)(6) of the Code) on
a substantially full time basis for a period of at least one (1) year and such
services are of a type historically performed by employees in the business
field of the recipient employer; provided that any such person shall not be
taken into account if (a) such person is covered by a money purchase pension
plan providing (i) a nonintegrated employer contribution rate of at least ten
(10%) percent of compensation, as defined in Section 415(c)(3) of the Code, but
including amounts contributed by the employer pursuant to a salary reduction
agreement which are excludable from the person's gross income under Sections
125, 402(a)(8), 402(h) or 403(b) of the Code; (ii) immediate participation; and
(iii) full and immediate vesting; and (b) leased employees do not constitute
more than twenty (20%) percent of the workforce of the recipient who are not
Highly Compensated Employees. Contributions or benefits provided a leased
employee by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by the
recipient employer.
1.2.28 "Life Insurance Policy": A life insurance, annuity or
endowment policy or contract which is owned by the Trust and is on the life of
a Participant.
1.2.29 "Limitation Year": Unless otherwise specified in the
Adoption Agreement, the Plan Year; provided that all qualified plans maintained
by the Employer must use the same Limitation Year.
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<PAGE> 32
1.2.30 "Mass Submitter": DATAIR Employee Benefit Systems,
Inc.
1.2.31 "Normal Retirement Age": The earlier of the date
specified as the Normal Retirement Age in the Adoption Agreement or the
mandatory retirement age enforced by the Employer.
1.2.32 "Normal Retirement Date": The date specified in the
Adoption Agreement as the Normal Retirement Date.
1.2.33 "Owner-Employee": An individual who is a sole
proprietor or who is a partner owning more than ten percent (10%) of either the
capital or profits interest of a partnership.
1.2.34 "Participant": Any eligible Employee who becomes
entitled to participate in the Plan.
1.2.35 "Plan": The profit sharing plan for Employees as set
forth in this Agreement and the Adoption Agreement, together with any
amendments or supplements thereto.
1.2.36 "Plan Administrator": The person, persons or entity
appointed by the Employer to administer the Plan or, if the Employer fails to
make such appointment, the Employer.
1.2.37 "Plan Sponsor": The Plan Sponsor specified in the
Adoption Agreement.
1.2.38 "Plan Year" or "Year": The 12 consecutive month
period designated by the Employer in the Adoption Agreement.
1.2.39 "Preretirement Survivor Annuity": A survivor annuity
for the life of the surviving spouse of the Participant under which
(a) the payments to the surviving spouse are not less
than the amounts which would be payable under a Joint and Survivor
Annuity (or the actuarial equivalent thereof) if -
(i) in the case of a Participant who dies after
the date on which the Participant attained the earliest
retirement age under the Plan on which he could elect to
receive retirement benefits, such Participant had retired with
an immediate Joint and Survivor Annuity on the day before the
Participant's date of death; or
(ii) in the case of a Participant who dies on or
before such date, such Participant had separated from service
on the date of death (except that a
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<PAGE> 33
Participant who had actually separated from service prior to
death shall be treated as separating on the actual date of
separation), survived to the earliest retirement age, retired
with an immediate Joint and Survivor Annuity at the earliest
retirement age and died on the day after the day on which such
Participant would have attained the earliest retirement age,
and
(b) The earliest period for which the surviving spouse
may receive a payment under such annuity is not later than the month
in which the Participant would have attained the earliest retirement
age under the Plan; and
(c) Any security interest held by the Plan by reason of a
loan outstanding to the Participant for which a valid spousal consent
has been obtained, if necessary, shall be taken into account.
1.2.40 "Qualifying Employer Securities or Real Property":
Securities or real property of the Employer which the Trustee may acquire and
hold pursuant to the applicable provisions of the Code and the Act.
1.2.41 "Related Plan": Any other defined contribution plan,
separate account of a key employee providing post-retirement medical benefits
of a welfare benefit fund or individual medical account which is part of a
pension or annuity plan, as defined in the applicable sections of the Code,
maintained by the Employer or by any other business entity that is, along with
the Employer, a member of a controlled group of corporations, an affiliated
service group or trades or businesses under common control, as defined in
Sections 414(b),(c) or (m) of the Code or which is otherwise required to be
taken into account under Section 414(o) of the Code and the regulations issued
thereunder which provides an annual addition during any Limitation Year.
1.2.42 "Segregated Account": An Account established and
maintained for a Participant to account for his interest in a Segregated Fund.
1.2.43 "Segregated Fund": Assets held in the name of the
Trustee which have been segregated from the Trust Fund in accordance with any
of the provisions of the Plan.
1.2.44 "Self-Employed Individual": An individual who has
Earned Income for the taxable year from the trade or business for which the
Plan is established or who would have had Earned Income but
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<PAGE> 34
for the fact that the trade or business had no net profits for the taxable
year.
1.2.45 "Social Security Integration Level": The amount
specified in the Adoption Agreement but not in excess of the maximum amount of
earnings which may be considered "wages" under Section 3121(a)(1) off the Code,
or corresponding future provisions of the Code, as in effect on the first day
of the Plan Year for which allocations of Employer Contributions and
forfeitures are made (referred to as the Social Security Wage Base). The
Social Security Integration Level shall be deemed to be the full amount of such
Social Security Integration Level, even though a Participant's Compensation may
include less than a full year's compensation because of either his
participation commencing after the first day of the Plan Year or his service
terminating prior to the end of the Plan Year.
1.2.46 "Trust Fund": All money and property of every kind
and character held by the Trustee pursuant to the Plan, excluding assets held
in Segregated Funds and Controlled Funds.
1.2.47 "Trustee": The persons, corporations, associations or
combination of them who shall at the time be acting as such from time to time
hereunder.
1.2.48 "Valuation Date": The Anniversary Date and such other
date or dates specified as the Valuation Date in the Adoption Agreement.
1.2.49 "Voluntary Account": An Account established and
maintained for a Participant for accounting purposes to which his voluntary
Employee contributions made prior to Plan Years beginning after 1986 have been
added.
1.2.50 "Year of Service": A Year of Service is a consecutive
month period (computation period) during which the employee completes at least
1,000 hours of service.
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<PAGE> 35
PART II
ARTICLE I
PARTICIPATION
2.1.1 Eligibility Requirements. Each Employee shall become
eligible to participate in this Plan upon satisfying the eligibility
requirements set forth in the Adoption Agreement.
2.1.2 Commencement of Participation. An eligible Employee
shall become a Participant in the Plan on the Entry Date selected in the
Adoption Agreement.
2.1.3 Participation Upon Re-Employment. A Participant
whose employment terminates and who is subsequently re-employed shall reenter
the Plan as a Participant immediately on the date of his re-employment. In the
event that an Employee completes the eligibility requirements set forth in the
Adoption Agreement, his employment terminates prior to becoming a Participant
and he is subsequently re-employed, such Employee shall be deemed to have met
the eligibility requirements as of the date of his re-employment and shall
become a Participant on the date of his re-employment; provided, however, that
if he is re-employed prior to the date he would have become a Participant if
his employment had not terminated, he shall become a Participant as of the date
he would have become a Participant if his employment had not terminated. Any
other Employee whose employment terminates and who is subsequently re-employed
shall become a Participant in accordance with the provisions of Sections 2.1.1
and 2.1.2.
2.1.4 Termination of Participation. An Employee who has
become a Participant shall remain a Participant until the entire amount of his
Distributable Benefit is distributed to him or his Beneficiary in the event of
his death.
2.1.5 Determination of Eligibility. In the event any
question shall arise as to the eligibility of any person to become a
Participant or the commencement of participation, the Plan Administrator shall
determine such question from information provided by the Employer and the Plan
Administrator's decision shall be conclusive and binding, except to the extent
of a claimant's right to appeal the denial of a claim.
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<PAGE> 36
2.1.6 Omission of Eligible Employee. If an Employee who
should be included as a Participant in the Plan is erroneously omitted and
discovery of the omission is made after the contribution by the Employer is
made and allocated, the Employer shall make an additional contribution on
behalf of the omitted Employee in the amount which the Employer would have
contributed on his behalf had he not been omitted.
2.1.7 Inclusion of Ineligible Participant. If any person
is erroneously included as a Participant in the Plan and discovery of the
erroneous inclusion is made after the contribution by the Employer is made and
allocated, the Employer may elect to treat the amount contributed on behalf of
the ineligible person plus any earnings thereon as a forfeiture for the Plan
Year in which the discovery is made and apply such amount in the manner
specified in the Adoption Agreement.
2.1.8 Election Not to Participate. Notwithstanding
anything contained in the Plan to the contrary, an Employee may elect with the
approval of the Employer not to participate in the Plan if the tax-exempt
status of the Plan is not jeopardized by the election. The Employee shall sign
such documents as may be reasonably required by the Employer to evidence the
election. If it is subsequently determined that the tax-exempt status of the
Plan has been jeopardized, the Employer may elect to treat such Employee as
having been erroneously omitted. An Employee may revoke the election only with
respect to any subsequent Plan Year by written notice of revocation to the
Employer prior to the end of the Plan Year for which the revocation is
effective.
2.1.9 Existing Participants. An Employee who, on the
Effective Date, was a Participant under the provisions of the Plan as in effect
immediately prior to the Effective Date shall be a Participant on the Effective
Date and the provisions of Sections 2.1.1 and 2.1.2, pertaining to
participation, shall not be applicable to such Employee. The rights of a
Participant whose employment terminated prior to the Effective Date shall be
determined under the provisions of the Plan as in effect at the time of such
termination.
2.1.10 Change in Status. If any Participant continues in
the employ of the Employer or an affiliate for which service is required to be
taken into account but ceases to be an Employee by becoming a member of any
ineligible class for any reason (such as becoming covered by a collective
bargaining agreement unless the collective bargaining agreement otherwise
provides) the Participant shall continue to be a Participant until the entire
amount of his benefit is distributed but the individual shall not be entitled
to receive an allocation of contributions or forfeitures during the period that
the Participant is not an Employee for such reason. Such Participant shall
continue to receive credit for Years of Service completed during
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<PAGE> 37
the period for purposes of determining his vested and nonforfeitable interest
in his Accounts. In the event that the individual subsequently again becomes a
member of an eligible class of employees, the individual shall participate
immediately upon the date of such change in status. If such Participant incurs
a Break in Service and is subsequently reemployed, eligibility to participate
shall be determined in accordance with Section 2.1.3. In the event that an
individual who is not a member of an eligible class of employees becomes a
member of an eligible class, the individual shall participate immediately if
such individual has satisfied the eligibility requirements and would have
otherwise previously become a participant.
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<PAGE> 38
ARTICLE II
CONTRIBUTIONS
2.2.1 Employer Contributions.
(a) Amount of Contribution. The Employer shall
contribute to the Trust Fund each Plan Year such amount as it may
determine; provided, however, that the contribution for any Year shall
not exceed the maximum amount deductible from the Employer's income
for such Year for federal income tax purposes under the applicable
sections of the Code.
(b) Time of Contribution. All contributions by the
Employer shall be delivered to the Trustee not later than the date
fixed by law for the filing of the Employer's federal income tax
return for the Year for which such contribution is made (including any
extensions of time granted by the Internal Revenue Service for filing
such return).
(c) Determination of Amount to be Final. The
determination by the Employer as to the amount to be contributed by
the Employer hereunder shall be in all respects final, binding, and
conclusive on all persons or parties having or claiming any rights
under this Agreement or under the Plan and Trust created hereby.
Under no circumstances and in no event shall any Participant,
Beneficiary, or other person or party have any right to examine the
books or records of the Employer.
(d) Rights of Trustee as to Contributions. The Trustee
shall have no duty to require any contribution to be made or to
determine whether contributions delivered to the Trustee by the
Employer comply with the provisions of this Agreement. The Trustee
shall be accountable only for funds actually received by the Trustee.
2.2.2 Employee Contributions.
(a) Amount of Contribution. An Employee is neither
required nor permitted to contribute to the Plan for any Plan Year
beginning after the Plan Year in which the prototype Plan is adopted
by the Employer. Employee contributions for Plan Years beginning
after 1986 together with any matching contributions as defined in
Section 401(m) of the Code shall be limited so as to meet the
nondiscrimination test of Section 401(m). The Plan Administrator
shall not accept deductible employee contributions attributable to any
Plan Year.
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<PAGE> 39
(b) Withdrawal of Contributions. in accordance with the
provisions of the Plan as in effect prior to Plan Years beginning
after 1986, all or any portion of an Employee's contributions may be
withdrawn by giving to the Plan Administrator written notice of any
proposed withdrawal. The Plan Administrator may adopt such procedures
with respect to such withdrawals as may be necessary or appropriate.
The Trustee shall distribute any such withdrawal to the Participant in
accordance with the procedures adopted by the Plan Administrator.
Such withdrawals shall not include any interest or other increment
earned on such contributions. No forfeitures shall occur as a result
of an Employee's withdrawal of voluntary contributions.
Notwithstanding the foregoing, a withdrawal of voluntary contributions
must be consented to in writing by the Participant's spouse.
2.2.3 Return of Contributions. Employer contributions
shall be returned to the Employer in the following instances:
(a) If the contribution is made by Employer by mistake of
fact, then the contribution shall be returned within one year after
its payment upon the Employer's written request.
(b) If the contribution is conditioned on initial
qualification of the Plan under the applicable sections of the Code,
and the Commissioner of Internal Revenue determines that the Plan does
not qualify, then the contribution made incident to the initial
qualification by the Employer shall be returned within one year after
the date of denial of initial qualification of the Plan; provided that
the application for initial qualification is made by the time
prescribed by law for filing the Employer's tax return for the taxable
year in which the Plan is adopted, or such later date as the Secretary
of the Treasury may prescribe.
(c) Each contribution by the Employer is conditioned upon
the deductibility of the contribution under the applicable sections of
the Code, and to the extent of disallowance of the deduction for part
or all of the contribution, the contribution shall be returned within
one year after such disallowance upon the Employer's written request.
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<PAGE> 40
ARTICLE III
ALLOCATIONS
2.3.1 Basic Allocation. As of each Anniversary Date, the
contribution made by the Employer and any forfeitures to be allocated with
respect to the preceding Plan Year shall be allocated among the Employer
Accounts of Participants during the Plan Year, in the manner set forth in the
Adoption Agreement; provided that the Employer contribution must satisfy the
requirements of Section 416 of the Code regardless of how the Adoption
Agreement is completed.
2.3.2 Minimum Allocation. In the event the Plan becomes a
Top-Heavy Plan during any Plan Year, the provisions of Section 2.6.1(a) shall
apply.
2.3.3 Fail-Safe Allocation. Notwithstanding any provision
of the Plan or Adoption Agreement to the contrary, for Plan Years beginning
after December 31, 1989, if the Plan would otherwise fail to satisfy the
requirements of Section 401(a)(26), 410(b)(1) or 410(b)(2)(A)(i) of the Code
and the regulations thereunder because Employer contributions have not been
allocated to a sufficient number or percentage of Participants for the Plan
Year, an additional contribution shall be made by the Employer and shall be
allocated to the Employer Accounts of affected Participants subject to the
following provisions:
(a) The Participants eligible to share in the allocation
of the Employer's contribution shall be expanded to include the
minimum number of Participants who are not otherwise eligible to the
extent necessary to satisfy the applicable test under the relevant
Section of the Code. The specific Participant who shall become
eligible are those Participants who are actively employed on the last
day of the Plan Year who have completed the greatest number of Hours
of Service during the Plan Year.
(b) If the applicable test is still not satisfied, the
Participants eligible to share in the allocation shall be further
expanded to include the minimum number of Participants who are not
employed on the last day of the Plan Year as are necessary to satisfy
the applicable test. The specific Participants who shall become
eligible are those Participants who have completed the greatest number
of Hours of Service during the Plan Year.
(c) A Participant's accrued benefit shall not be reduced
by any reallocation of amounts that have previously been allocated.
To the extent necessary, the Employer shall make an additional
contribution equal to the amount such affected Participants would
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<PAGE> 41
have received if they had originally shared in the allocations without
regard to the deductibility of the contribution. Any adjustment to
the allocations pursuant to this paragraph shall be considered a
retroactive amendment adopted by the last day of the Plan Year.
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<PAGE> 42
ARTICLE IV
BENEFITS
2.4.1 Distributable Benefit. At such time that the
employment of a Participant terminates for any reason, he or his Beneficiary
shall be entitled to a benefit equal to the vested and nonforfeitable interest
in his Accounts as of the Distribution Date. The Accounts shall include the
allocable share of contributions and forfeitures, if any, which may be
allocated to the Accounts as of such Distribution Date, and shall be determined
after making the adjustments for which provision is made in the Plan.
2.4.2 Vesting. A Participant shall at all times be one
hundred percent (100%) vested and have a nonforfeitable interest in his
Voluntary Account and Segregated Account. The vested and nonforfeitable
interest of the Participant in his Controlled Account shall be determined by
reference to the Account from which the funds were originally transferred. The
vested and nonforfeitable interest in a Participant's Employer Account shall be
determined as hereinafter provided.
(a) Normal Retirement. If a Participant terminates
employment at his Normal Retirement Age or upon attainment of age
sixty-five (65) if earlier, he shall be one hundred percent (100%)
vested and have a nonforfeitable interest in his Employer Account.
(b) Deferred Retirement. If a Participant continues in
active employment following his Normal Retirement Age, he shall
continue to participate under the Plan. From and after his Normal
Retirement Age, he shall be one hundred percent (100%) vested and have
a nonforfeitable interest in his Employer Account.
(c) Disability. If the employment of a Participant is
terminated prior to his Normal Retirement Age as a result of a
medically determinable physical or mental impairment which may be
expected to result in death or to last for a continuous period of not
less than twelve (12) months and which renders him incapable of
performing his duties, he shall be one hundred percent (100%) vested
and have a nonforfeitable interest in his Employer Account. All
determinations in connection with the permanence and degree of such
disability shall be made by the Plan Administrator in a uniform,
nondiscriminatory manner on the basis of medical evidence.
(d) Death. In the event of the death of a Participant,
he shall be one hundred percent (100%) vested and have a
nonforfeitable interest in his Employer Account.
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<PAGE> 43
(e) Termination of Plan. In the event of termination of
the Plan (including termination resulting from a complete
discontinuance of contributions by the Employer), each Participant
shall be one hundred percent (100%) vested and have a nonforfeitable
interest in his Employer Account. In the event of a partial
termination of the Plan, each Participant with respect to whom such
partial termination has occurred shall be one hundred percent (100%)
vested and have a nonforfeitable interest in his Employer Account.
(f) Early Retirement, Resignation or Discharge. If the
employment of a Participant terminates by reason of early retirement,
resignation or discharge prior to his Normal Retirement Age, he shall
be vested and have a nonforfeitable interest in a percentage of his
Employer Account determined, except as provided below, by taking into
account all of his Years of Service as of such termination date in
accordance with the schedule set forth in the Adoption Agreement.
2.4.3 Leave of Absence. A temporary cessation from active
employment with the Employer pursuant to an authorized leave of absence in
accordance with the nondiscriminatory policy of the Employer, whether
occasioned by illness, military service or any other reason shall not be
treated as either a termination of employment or a Break in Service provided
that the Employee returns to employment prior to the end of the authorized
leave of absence.
2.4.4 Re-Employment. Unless otherwise elected by the
Employer in the Adoption Agreement, in the case of a Participant who has five
(5) or more consecutive Breaks in Service, all Years of Service after such
Breaks in Service shall be disregarded for the purposes of vesting the
employer-derived account balance that accrued before such breaks, but both
pre-break and post-break service shall count for the purposes of vesting the
employer-derived account balance that accrues after such breaks. Both accounts
shall share in the earnings and losses of the Trust Fund. In the case of a
Participant who does not have five (5) consecutive Breaks in Service, both the
pre-break and post-break service shall count in vesting both the pre-break and
post-break employer-derived account balance.
2.4.5 Distribution Date. The Distribution Date shall be
determined as hereinafter provided.
(a) Less Than 100% vested. Except as otherwise specified
in the Adoption Agreement, if the employment of a Participant
terminates and the Participant has less than a one hundred percent
(100%) vested and nonforfeitable interest in his Employer Account as
of the date of such termination, the Distribution Date shall be the
last day of the fifth (5th) successive Plan Year during each
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<PAGE> 44
of which he first incurs a Break in Service as a result of the
termination of his employment, provided that he is not re-employed on
the last day of such Plan Year.
(b) Termination of Plan. In the event of termination of
the Plan (including termination resulting from a complete
discontinuance of contributions by the Employer), the Distribution
Date shall be the date of such termination. In the event of a partial
termination of the Plan, as to each Participant with respect to whom
such partial termination has occurred, the Distribution Date shall be
the Anniversary Date coinciding with or immediately following the date
of such partial termination.
(c) Other. Except as provided in subsections (a) and (b)
above, the Distribution Date shall be the Anniversary Date coinciding
with or next following the termination of employment of the
Participant.
2.4.6 Forfeitures. If an Employee terminates service, and
the value of the Employees' vested account balance derived from employer and
employee contributions is not greater than $3,500 and the Employee receives a
distribution of the value of the entire vested portion of such account balance,
the nonvested portion shall be treated as a forfeiture as of the last day of
the Plan Year in which the Participant's entire vested interest is distributed
from the Plan. If the value of an Employee's vested account balance is zero,
the Employee shall be deemed to have received a distribution of such vested
account balance. A participant's vested account balance shall not include
accumulated deductible employee contributions within the meaning of Section
72(o)(5)(B) of the Code for plan years beginning prior to January 1, 1989.
If an employee terminates service, and elects, in accordance
with the requirements of Section 2.5.2(a), to receive the value of the
employee's vested account balance, the nonvested portion shall be treated as a
forfeiture. If the employee elects to have distributed less than the entire
vested portion of the-account balance derived from employer contributions, the
part of the nonvested portion that will be treated as a forfeiture is the total
nonvested portion multiplied by a fraction, the numerator of which is the
amount of the distribution attributable to employer contributions and the
denominator of which is the total value of the vested employer derived account
balance.
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<PAGE> 45
If an Employee receives a distribution and the Employee
resumes employment covered under the Plan, the Employee's employer-derived
account balance shall be restored to the amount on the date of distribution if
the Employee repays to the Plan the full amount of the distribution
attributable to Employer contributions before the earlier of five (5) years
after the first date on which the Participant is subsequently re-employed by
the Employer, or the date the Participant incurs five (5) consecutive Breaks in
Service following the date of the distribution. If an Employee is deemed to
receive a distribution pursuant to this section, and the Employee resumes
employment covered under the Plan before the date the Participant incurs five
(5) consecutive Breaks in Service, upon the reemployment of such Employee, the
employer-derived account balance of the Employee will be restored to the
amount on the date of such deemed distribution.
Unless otherwise elected in the Adoption Agreement, such
forfeiture shall be allocated in the same manner as a contribution by the
Employer for the Year in which said forfeiture occurred. Notwithstanding any
provision herein to the contrary, forfeitures resulting from contributions by
an Employer shall not be reallocated for the benefit of another adopting
Employer.
If a Participant is re-employed following a Break in Service
and is entitled to restoration of any amount of his Accounts which was
forfeited as a result of such Break in Service, such amount shall be restored
in the manner specified in the Adoption Agreement.
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<PAGE> 46
ARTICLE V
DISTRIBUTIONS
2.5.1 Commencement of Distribution.
(a) Immediate Distribution. If the employment of a
Participant is terminated for any reason other than resignation or
discharge prior to either his Early Retirement Date or his Normal
Retirement Date, distribution of his Distributable Benefit shall begin
in accordance with the Participant's election at any time after the
earlier of the date determined under subsection (b) below or within a
reasonable period after the Distribution Date as of which his
Distributable Benefit is determined; provided that, if he has not
incurred a Break in Service, he is not re-employed prior to the date
of the commencement of distributions.
(b) Deferred Distribution. Unless the Employer elects in
the Adoption Agreement to permit the Employee to elect earlier
commencement, if the employment of a Participant is terminated by
reason of resignation or discharge prior to either his Early
Retirement Date or his Normal Retirement Date, distribution of his
Distributable Benefit shall be deferred and commenced unless the
Participant elects to further defer distribution on the sixtieth
(60th) day after the close of the later of the following Plan Years:
(i) The Plan Year during which the Participant
attains the earlier of age sixty-five (65) or the Normal
Retirement Age;
(ii) The Plan Year during which the tenth (10th)
anniversary of the commencement of the Participant's
participation in the Plan occurs; or
(iii) The Plan Year during which the Participant
terminates service with the Employer.
If, however, the Employer selects an Early Retirement Date in the
Adoption Agreement, a Participant who terminates employment before
satisfying the age requirement for early retirement but has satisfied
any service requirement shall be entitled to a distribution of his
Distributable Benefit in accordance with subsection (a) above upon
attaining such age.
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<PAGE> 47
If distribution is so deferred, unless otherwise determined by the
Trustee, the Trustee shall transfer the Distributable Benefit to a
Segregated Fund from which distribution shall thereafter be made.
Such transfer shall be made as of the Distribution Date.
Notwithstanding the foregoing, the failure of a Participant and spouse
to consent to a distribution while a benefit is immediately
distributable, within the meaning of Section 2.5.2(j), shall be deemed
to be an election to defer commencement of payment of any benefit
sufficient to satisfy this section.
(c) Required Distribution. Notwithstanding anything
herein to the contrary, unless the Participant has made an appropriate
election by December 31, 1983 to defer distribution which has not been
revoked or modified, the Participant's benefit shall be distributed to
the Participant not later than April 1 of the calendar year following
the calendar year in which he attains age 70-1/2 (the required
beginning date) or shall be distributed, commencing not later than
April 1 of such calendar year in accordance with regulations
prescribed by the Secretary of the Treasury over a period not
extending beyond the life expectancy of the Participant or the life
expectancy of the Participant and a beneficiary designated by the
Participant. The amount required to be distributed for each calendar
year, beginning with distributions for the first distribution calendar
year, must at least equal the quotient obtained by dividing the
Participant's benefit by the applicable life expectancy. Unless
otherwise elected by the Participant (or spouse, if distributions
begin after death and the spouse is the designated beneficiary) by the
time distributions are required to begin, the life expectancy of the
Participant and the Participant's spouse shall be recalculated
annually. Other than for a life annuity, such election shall be
irrevocable as to the Participant or spouse and shall apply to all
subsequent years. The life expectancy of a non-spouse beneficiary
may not be recalculated. Life expectancy and joint and last survivor
expectancy shall be computed by use of the expected return multiples
in Tables V and VI of Section 1.72-9 of the Treasury Regulations. For
calendar years beginning after December 31, 1988, the amount to be
distributed each year, beginning with distributions for the first
distribution calendar year shall not be less than the quotient
obtained by dividing the Participant's benefit by the lesser of (1)
the applicable life expectancy or (2) if the Participant's spouse is
not the designated beneficiary, the applicable divisor then determined
from the table set forth in Q&A-4 of Section 1.401(a)(9)-2 of the
proposed regulations. Distributions after the death of the Participant
shall be distributed using the applicable life expectancy as the
relevant divisor without regard to Proposed Regulations Section
1.401(a)(9)-2. The minimum distribution for subsequent calendar
years,
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<PAGE> 48
including the minimum distribution for the distribution calendar year
in which the Participant's required beginning date occurs, must be
made on or before December 31 of that distribution calendar year.
(d) Distribution After Death. Unless the Participant has
made an appropriate election by December 31, 1983 to extend the period
of distribution after his death and the election has not been revoked
or modified, the following provisions shall apply. If distribution of
the Participant's benefit has begun and the Participant dies before
his entire benefit has been distributed to him, the remaining portion
of such benefit shall be distributed at least as rapidly as under the
method of distribution being used as of the date of the Participant's
death.
If the Participant dies before the distribution of his benefit
has begun, the entire interest of the Participant shall be distributed
by December 31 of the calendar year containing the fifth (5th)
anniversary of the death of such Participant, provided that if any
portion of the Participant's benefit is payable to or for the benefit
of a designated beneficiary and such portion is to be distributed in
accordance with regulations issued by the Secretary of the Treasury
over the life of, or over a period not extending beyond the life
expectancy of such designated beneficiary, such distributions shall
begin not later than December 31 of the calendar year immediately
following the calendar year of the Participant's death or such later
date as may be provided by regulations issued by the Secretary of the
Treasury. If the designated beneficiary is the surviving spouse of
the Participant the date on which the distributions are required to
begin shall not be earlier than the later of December 31 of the
calendar year immediately following the calendar year in which the
Participant had died and December 31 of the calendar year in which the
Participant would have attained age 70-1/2. If the surviving spouse
thereafter dies before the distributions to such spouse begin and any
benefit is payable to a contingent beneficiary, the date on which
distributions are required to begin shall be determined as if the
surviving spouse were the Participant.
If the Participant has not specified the manner in which
benefits are payable by the time of his or her death, the
Participant's designated beneficiary must elect the method of
distribution no later than the earlier of (1) December 31 of the
calendar year in which distributions would be required to begin under
this section, or (2) December 31 of the calendar year which contains
the fifth anniversary of the date of death of the Participant. If the
Participant has no designated beneficiary, or if the designated
beneficiary does not elect a method of
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<PAGE> 49
distribution, distribution of the Participant's entire interest must
be completed by December 31 of the calendar year containing the fifth
anniversary of the Participant's death.
(e) Payments to Children. In accordance with regulations
issued by the Secretary of the Treasury, any amount paid to a child
shall be treated as if it had been paid to the surviving spouse if
such amount shall become payable to the surviving spouse upon such
child reaching majority (or other designated event permitted under
such regulations).
(f) Incidental Death Benefit Distributions. Any
distribution required by the rules applicable to incidental death
benefits shall be treated as a distribution required by this Section.
All distributions required under this Section shall be determined and
made in accordance with the proposed regulations under Section
401(a)(9) of the Code, including the minimum distribution incidental
benefit requirement of Section 1.401(a)(9)-2 of the proposed
regulations.
(g) Distributions. For the purposes of this section,
distribution of a Participant's interest is considered to begin on the
Participant's required beginning date or the date distribution is
required to begin to the surviving spouse. If distribution in the
form of an annuity irrevocably commences to the Participant before the
required beginning date, the date distribution is considered to begin
is the date distribution actually commences.
(h) Definitions.
(1) Applicable life expectancy. The life
expectancy (or joint and last survivor expectancy) calculated
using the attained age of the Participant (or designated
beneficiary) as of the Participant's (or designated
beneficiary's) birthday in the applicable calendar year
reduced by one for each calendar year which has elapsed since
the date life expectancy was first calculated. If life
expectancy is being recalculated, the applicable life
expectancy shall be the life expectancy as so recalculated.
The applicable calendar year shall be the first distribution
calendar year, and if life expectancy is being recalculated
such succeeding calendar year.
(2) Designated beneficiary. The individual who
is designated as the beneficiary under the Plan in accordance
with Section 401(a)(9) and the proposed regulations
thereunder.
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<PAGE> 50
(3) Distribution calendar year. A calendar year
for which a minimum distribution is required. For
distributions beginning before the Participant's death, the
first distribution calendar year is the calendar year
immediately preceding the calendar year which contains the
Participant's required beginning date. For distributions
beginning after the Participant's death, the first
distribution calendar year is the calendar year in which
distributions are required to begin.
(4) Participant's benefit.
(i) The account balance as of the last
valuation date in the calendar year immediately
preceding the distribution calendar year (valuation
calendar year) increased by the amount of any
contributions or forfeitures allocated to the account
balance as of dates in the valuation calendar year
after the valuation date and decreased by
distributions made in the valuation calendar year
after the valuation date.
(ii) Exception for second distribution
calendar year. For purposes of paragraph (i) above,
if any portion of the minimum distribution for the
first distribution calendar year is made in the
second distribution calendar year on or before the
required beginning date, the amount of the minimum
distribution made in the second distribution calendar
year shall be treated as if it had been made in the
immediately preceding distribution calendar year.
(5) Required beginning date.
(i) General rule. The required
beginning date of a Participant is the first day of
April of the calendar year following the calendar
year in which the Participant attains age 70-1/2.
(ii) Transitional rules. The required
beginning date of a Participant who attains age
70-1/2 before January 1, 1988, shall be determined in
accordance with (I) or (II) below:
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<PAGE> 51
(I) Non-5-percent owners. The
required beginning date of a Participant who
is not a 5-percent owner is the first day of
April of the calendar year following the
calendar year in which the later of
retirement or attainment of age 70-1/2
occurs.
(II) 5-percent owners. The required
beginning date of a Participant who is a
5-percent owner during any year beginning
after December 31, 1979, is the first day of
April following the later of:
(A) the calendar year in which the
Participant attains age 70-1/2, or
(B) the earlier of the calendar
year with or within which ends the
Plan Year in which the Participant
becomes a 5-percent owner, or the
calendar year in which the
Participant retires.
The required beginning date of a
Participant who is not a 5-percent owner who
attains age 70-1/2 during 1988 and who has
not retired as of January 1, 1989, is April
1, 1990.
(iii) 5-percent owner. A Participant
is treated as a 5-percent owner for purposes
of this section if such Participant is a
5-percent owner as defined in Section 416(i)
of the Code (determined in accordance with
Section 416 but without regard to whether the
Plan is top-heavy) at any time during the
Plan Year ending with or within the calendar
year in which such owner attains age 66-1/2
or any subsequent Plan Year.
(iv) Once distributions have begun
to a 5-percent owner under this section, they
must continue to be distributed, even if the
Participant ceases to be a 5-percent owner in
a subsequent year.
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<PAGE> 52
(i) Transitional rule.
(1) Notwithstanding the other requirements of
this Section and subject to the requirements of Section 2.5.2,
distribution on behalf of any employee, including a 5-percent
owner, may be made in accordance with all of the following
requirements (regardless of when such distribution commences):
(a) The distribution by the trust is one
which would not have disqualified such trust under
Section 401(a)(9) of the Internal Revenue Code as in
effect prior to amendment by the Deficit Reduction
Act of 1984.
(b) The distribution is in accordance
with a method of distribution designated by
the employee whose interest in the trust is
being distributed or, if the employee is
deceased, by a beneficiary of such employee.
(c) Such designation was in writing, was
signed by the employee or the beneficiary, and was
made before January 1, 1984.
2.5.2 Method of Distribution. Subject to the provisions of
Section 2.5.1 above and any security interest in a loan from the Plan for which
any necessary spousal consent has been obtained (to the extent such security
interest is used as repayment of the loan), distribution shall be made by one
of the following methods, as determined in accordance with the election of the
Participant (or in the case of death, his Beneficiary) with such spousal
consents as may be required by law in any of the following methods which are
designated by the Employer in the Adoption Agreement:
(a) In a single distribution; provided that if the
Employer has applied a consistent policy since the first Plan Year
beginning after 1988, the Employer may require a Participant who is a
Highly Compensated Employee or who is otherwise entitled to receive a
lump sum distribution in excess of $25,000.00 to execute a covenant
not to compete with the Employer which shall provide that the
Participant agrees that he shall not solicit the business of any
person or entity doing business with the Employer at any time within
the twelve month period prior to the date of termination of his
employment and, in addition, shall not engage in any business, whether
as a sole proprietor, partner, joint venturer, shareholder, employee,
independent contractor, agent or otherwise, which is in competition
with the business of the Employer for a period not
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<PAGE> 53
exceeding two (2) years from the date of such distribution within
fifty (50) miles of the principal offices of the Employer or
containing such alternative provisions as determined by the Employer.
(b) In substantially equal annual, quarterly or monthly
installments over a period of more than one year but which does not
exceed the period designated in the Adoption Agreement, as selected by
the Participant, plus accrued net income. If distribution is to be so
made in installments, the Trustee shall cause the undistributed
portion of the Distributable Benefit to be transferred to a Segregated
Fund, from which installment payments shall thereafter be withdrawn
from time to time.
(c) By the purchase and delivery of a single premium,
nontransferable, fully refundable, annuity policy issued by a legal
reserve life insurance company providing for payments over such period
as may be designated in the Adoption Agreement as selected by the
Participant; provided, however, unless the Employer has designated a
life annuity distribution option in the Adoption Agreement, in the
event of distribution of such an annuity policy to a Participant, such
duration shall be for a fixed duration which is less than the
Participant's life expectancy as of the annuity starting date. The
refund feature under such annuity policy following the death of the
Participant shall inure to the benefit of the person or persons
designated by the Participant as his Beneficiary.
(d) Any alternative method of equivalent value contained
in the Plan at any time on or after the first day of the first Plan
Year beginning after 1988 to which the Participant consents.
(e) Annuity Payments
(1) Requirement of Annuity Payment
In the event that the Employer designates a life
annuity distribution option in the Adoption Agreement or the
Plan contained such an option at any time on or after the
first day of the first Plan Year beginning after 1988, as of
such date, except as otherwise provided herein, (i) a married
Participant's vested Account balance shall be provided in the
form of a Joint and Survivor Annuity, (ii) in the case of a
married Participant who dies before the annuity starting date
and has a surviving spouse, a
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<PAGE> 54
Preretirement Survivor Annuity shall be provided to such
surviving spouse and (iii) an unmarried Participant's vested
Account balance shall be paid in the form of a life annuity.
A Participant's vested Account balance is the
aggregate value of the Participant's vested account balances
derived from employer and employee contributions (including
rollovers), whether vested before or upon death, including the
proceeds of insurance contracts, if any, on the Participant's
life. The provisions hereof shall apply to a Participant who
is vested in amounts attributable to employer contributions,
employee contributions (or both) at the time of death or
distribution.
The Participant may elect to have such annuity
distributed upon attainment of the earliest retirement age
under the Plan. A surviving spouse may elect to have such
annuity distributed within the ninety (90) day period
commencing on the date of the Participant's death.
(2) Election to Waive Annuity Payment
A Participant may elect at any time during the
applicable election period to waive the Joint and Survivor
Annuity form of benefit or the Preretirement Survivor Annuity
form of benefit (or both) and may revoke any such election at
any time during the applicable election period.
(3) Spouse Consent Required
An election to waive any annuity form of benefit
shall not take effect unless the spouse of the Participant
consents in writing to the election, such election designates
a specific beneficiary, including any class of beneficiaries
or contingent beneficiaries, or, solely in the case of a
waiver of a Joint and Survivor Annuity, a form of benefits
which may not be changed without spousal consent (or the
consent of the spouse expressly permits designations by the
Participant without any requirement of further consent by the
spouse), and the spouse's consent acknowledges the effect of
such election and is witnessed by a Plan representative or a
notary public, or it is established to the satisfaction of the
Plan
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<PAGE> 55
Administrator that such consent cannot be obtained because
there is no spouse or because the spouse cannot be located. A
spouse may not revoke the consent without the approval of the
Participant.
Any consent by a spouse obtained under this provision
(or establishment that the consent of a spouse may not be
obtained) shall be effective only with respect to such spouse.
A consent that permits designations by the Participant without
any requirement of further consent by such spouse must
acknowledge that the spouse has the right to limit consent to
a specific beneficiary, and a specific form of benefit where
applicable, and that the spouse voluntarily elects to
relinquish either or both of such rights. A revocation of a
prior waiver may be made by a Participant without the consent
of the spouse at any time before the commencement of benefits.
The number of revocations shall not be limited. No consent
obtained under this provision shall be valid unless the
Participant has received notice as provided in subsection (4)
below.
(4) Written Explanations
The Plan Administrator shall provide each Participant
no less than 30 days and no more than 90 days before the
annuity starting date a written explanation of -
(a) the terms and conditions of a Joint
and Survivor Annuity;
(b) the Participant's right to make and
the effect of an election to waive the Joint and
Survivor Annuity form of benefit;
(c) the rights of the Participant's
spouse to consent to a Participant's election;
(d) the right to make and the effect of
a revocation of an election.
The Plan Administrator shall provide to each
Participant within the applicable period a written explanation
of a Preretirement Survivor Annuity comparable to that
provided with respect to a Joint and Survivor Annuity.
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<PAGE> 56
(5) Applicable Period
The applicable period means with respect to a
Participant, whichever of the following periods ends last:
(a) The period beginning with the first
day of the Plan Year in which the Participant attains
age 32 and ending with the close of the Plan Year
preceding the Plan Year in which the Participant
attains age 35.
(b) A reasonable period ending after the
individual becomes a Participant.
(c) A reasonable period ending after the
Plan ceases to fully subsidize costs.
(d) A reasonable period ending after
Section 401(a)(11) of the Code first applies to
the Participant.
(e) A reasonable period ending after
separation from service in case of a Participant who
separates before attaining age 35.
For purposes of applying the foregoing, a reasonable
period ending after the enumerated events described
in (A), (iii) and (iv) is the end of the two-year
period beginning one year prior to the date the
applicable event occurs and ending one year after
that date. In the case of a Participant who
separates from service before the Plan Year in which
age 35 is attained, notice shall be provided within
the two-year period beginning prior to separation and
ending one year after separation. If such a
Participant thereafter returns to employment with the
Employer, the applicable period for such Participant
shall be redetermined.
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(6) Applicable Election Period
The applicable election period means -
(a) in the case of an election to waive
a Joint and Survivor Annuity, the ninety (90) day
period ending on the annuity starting date; and
(b) in the case of an election to waive
a Preretirement Survivor Annuity, the period which
begins on the first day of the Plan Year in which the
Participant attains age thirty-five (35) and ends on
the date of the Participant's death; provided that in
the case of a Participant who is separated from
service, such period shall not begin later than the
date of such separation from service.
A Participant who will not yet attain age 35 as of
the end of any current Plan Year may make a special qualified
election to waive the Preretirement Survivor Annuity for the
period beginning on the date of such election and ending on
the first day of the Plan Year in which the Participant will
attain age 35. Such election shall not be valid unless the
Participant receives a written explanation of the
Preretirement Survivor Annuity in such terms as are comparable
to the explanation required under subsection (4).
Preretirement Survivor Annuity coverage will be automatically
reinstated as of the first day of the Plan Year in which the
Participant attains age 35. Any new waiver on or after such
date shall be subject to the full requirements of this
section.
(7) Annuity Starting Date.
The annuity starting date means the first day of the
first period for which an amount is payable as an annuity or
any other form.
(8) Marriage Requirement
Notwithstanding the foregoing, the benefits under the
Plan shall not be provided in the form of a Joint and Survivor
Annuity or a Preretirement Survivor Annuity unless the
Participant and his spouse have been married throughout the
one (1) year period ending
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on the earlier of the Participant's annuity starting date or
the date of the Participant's death. If a Participant marries
within one (1) year before the annuity starting date and the
Participant and his spouse in such marriage have been married
for at least a one (1) year period ending on or before the
date of the Participant's death, the Participant and such
spouse shall be treated as having been married throughout the
required period. A former spouse shall be treated as the
spouse or surviving spouse and a current spouse will not be
treated as the spouse or surviving spouse to the extent
provided under a qualified domestic relations order as
described in Section 414(p) of the Code.
(f) Terms of Annuity Contracts. Any annuity contract
distributed from the Plan must be nontransferable. The terms of any
annuity contract purchased and distributed by the Plan to a
Participant or spouse shall comply with the requirements of the Plan.
If the Participant's benefit is distributed in the form of an annuity
purchased from an insurance company, distributions thereunder shall be
made in accordance with the requirements of Section 401(a)(9) of the
Code and the proposed regulations thereunder.
(g) Incidental Death Benefits. For calendar years
beginning before January 1, 1989, if the Participant's spouse is not
the designated Beneficiary, the method of distribution selected must
assure that at least fifty (50%) percent of the present value of the
amount available for distribution is paid within the life expectancy
of the Participant.
(h) Consents Waived. If the value of a Participant's
vested account balance derived from Employer and Employee
contributions does not exceed (and at the time of any prior
distribution did not exceed) $3,500, the consent of the Participant
and spouse (or where either has died, the survivor) must consent to
any distribution of such account balance. The consent shall be
obtained in writing within the 90 day period ending on the annuity
starting date. Neither the consent of the Participant nor the
Participant's spouse shall be required to the extent that a
distribution is required to satisfy Section 401(a)(9) or Section 415
of the Code. In addition, upon termination of the Plan if the Plan
does not offer an annuity option (purchased from a commercial
provider), the Participant's account balance in the Plan may, without
the Participant's consent, be distributed to the Participant or
transferred to another defined contribution plan (other than an
employee stock ownership plan as defined in Section 4975(e)(7) of the
Code) within the same controlled group.
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<PAGE> 59
(i) Zero Benefits. If the value of the Participant's
vested and nonforfeitable interest in the Plan at the time of his
termination of employment is zero, the Participant shall be deemed to
have received a distribution of such interest.
(j) Restrictions on Immediate Distributions. The Plan
Administrator shall notify the Participant and the Participant's
spouse of the right to defer any distribution until the Participant's
account balance in the Plan is no longer immediately distributable.
Such notification shall include a general description of the material
features and an explanation of the relative values of the optional
forms of benefit available under the Plan in a manner that would
satisfy the notice requirements of Section 417(a)(3) of the Code and
shall be provided no less than 30 days and no more than 90 days prior
to the annuity starting date. Notwithstanding the foregoing, only the
Participant need consent to the commencement of a distribution in the
form of a qualified joint and survivor annuity while the Participant's
account balance in the Plan is immediately distributable.
Furthermore, if payment in the form of a qualified joint and survivor
annuity is not required with respect to the Participant pursuant to
the Plan, only the Participant need consent to the distribution of an
account balance that is immediately distributable. The Participant's
account balance is immediately distributable if any part of the
Participant's account balance could be distributed to the Participant
(or surviving spouse) before the Participant attains (or would have
attained if not deceased) the later of age 62 or the Normal Retirement
Age.
(k) Transitional Rules.
(1) Any living Participant not receiving benefits
on August 23, 1984, who would otherwise not receive the
benefits prescribed by the previous sections of the article
must be given the opportunity to elect to have the prior
sections of this article apply if such Participant is credited
with at least one hour of service under this Plan or a
predecessor plan in a Plan Year beginning on or after January
1, 1976, and such Participant has at least 10 years of vesting
service when he or she separated from service.
(2) Any living Participant not receiving benefits
on August 23, 1984, who was credited with at least one hour of
service under this Plan or a precedessor plan on or after
September 2, 1974, and who is not otherwise credited with any
service in a Plan Year beginning on or after January 1, 1976,
must be given the opportunity to have his or her benefits paid
in accordance with Section (4) below.
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<PAGE> 60
(3) The respective opportunities to elect (as
described above) must be afforded to the appropriate
Participants during the period commencing on August 23, 1984,
and ending on the date benefits would otherwise commence to
said Participants.
(4) Any Participant who has elected pursuant to
Section (2) above and any Participant who does not elect under
Section (1) or who meets the requirements of Section (1)
except that such Participant does not have at least 10 years
of vesting service when he or she separates from service,
shall have his or her benefits distributed in accordance with
all of the following requirements if benefits would have been
payable in the form of a life annuity:
(i) Automatic joint and survivor
annuity. If benefits in the form a life annuity
become payable to a married Participant who:
(1) begins to receive payments
under the Plan on or after
normal retirement age; or
(2) dies on or after normal
retirement age while still
working for the Employer; or
(3) begins to receive payments on
or after the qualified early
retirement age; or
(4) separates from service on or
after attaining normal retirement age (or the
qualified early retirement age) and after
satisfying the eligibility requirements for
the payment of benefits under the plan and
thereafter dies before beginning to receive
such benefits;
then such benefits will be received under
this Plan in the form of a qualified joint and
survivor annuity, unless the Participant has elected
otherwise during the election period. The election
period must begin at least 6 months before the
Participant attains qualified early retirement age
and end not more than 90 days before the commencement
of benefits. Any
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<PAGE> 61
election hereunder will be in writing and may be
changed by the Participant at any time.
(ii) Election of early survivor annuity.
A Participant who is employed after attaining the
qualified early retirement age will be given the
opportunity to elect, during the election period, to
have a survivor annuity payable on death. If the
Participant elects the survivor annuity, payments
under such annuity must not be less than the payments
which would have been made to the spouse under the
qualified joint and survivor annuity if the
Participant had retired on the day before his or her
death. Any election under this provision will be in
writing and may be changed by the Participant at any
time. The election period begins on the later of (1)
the 90th day before the Participant attains the
qualified early retirement age, or (2) the date on
which participation begins, and ends on the date the
Participant terminates employment.
(iii) For purposes of this Section (4):
(1) Qualified early retirement age
is the later of:
(i) the earliest date, under the
Plan, on which the Participant may
elect to receive retirement benefits,
(ii) the first day of the 120th
month beginning before the Participant
reaches normal retirement age, or
(iii) the date the Participant
begins participation.
(2) Qualified joint and survivor annuity is an
annuity for the life of the Participant with a survivor
annuity for the life of the spouse as otherwise described in
the Plan.
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<PAGE> 62
2.5.3 Nature of Distributions. The nature of the
distribution of a Participant's Distributable Benefit shall be as hereinafter
provided.
(a) Trust Fund and Segregated Funds. Subject to the
Joint and Survivor Annuity requirements, except as provided in
subsection (b) with regard to Life Insurance Policies, distribution of
a Participant's Distributable Benefit shall consist of cash or
property, or an annuity contract as provided in Section 5.2 above.
(b) Insurance Policies. In the event that the Trustee
has purchased Life Insurance Policies on the life of the Participant,
the values and benefits available with respect to each such Policy
shall be distributed as follows:
(i) If the Participant's employment terminates
for any reason other than death, then the Trustee shall either
surrender the Life Insurance Policy for its available cash
value and distribute the proceeds as provided in subsection
(a) above or, at the election of the Participant, distribute
the Life Insurance Policy to the Participant, provided the
Participant has a vested and nonforfeitable interest in his
Accounts in an amount at least equal to the cash value
thereof.
(ii) If the Participant's employment terminates by
reason of death, the beneficiary designated by the Participant
in accordance with the terms of the Plan shall be entitled to
receive from the Trustee the full amount of the proceeds
thereof.
The Trustee shall apply for and be the owner of any Policies purchased under
the terms of the Plan. The Policies must provide that the proceeds are payable
to the Trustee subject to the Trustee's obligation to pay over the proceeds to
the designated Beneficiary. Under no circumstances shall the trust retain any
part of the proceeds. In the event of any conflict between the terms of the
Plan and the terms of any Policies purchased hereunder, the Plan provisions
shall control.
2.5.4 Advance Distributions. If the Employer elects in the
Adoption Agreement to permit advance distribution to a Participant or his
Beneficiary after his employment has terminated and before he is otherwise
entitled to distribution of his Distributable Benefit, the Trustee upon the
request of the Participant or Beneficiary shall make advance distributions to
him or to his Beneficiary. The aggregate of such an advance distribution shall
not exceed the sum of the vested and nonforfeitable interest in the
Participant's Accounts.
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<PAGE> 63
If the Employer elects in the Adoption Agreement to forfeit
nonvested amounts immediately upon distribution of the Employee's entire vested
account balance on termination of service, an Employee who terminates service
and elects to receive the value of the Employee's vested account balance shall
forfeit the nonvested portion. If the Employee elects to have distributed less
than the entire vested portion of the account balance derived from Employer
contributions, the part of the nonvested portion that is treated as a
forfeiture is the total nonvested portion multiplied by a fraction, the
numerator of which is the amount of the distribution attributable to Employer
contributions and the denominator of which is the total value of the vested
Employer derived account balance.
Except as provided in the preceding paragraph, if a
Participant receives a distribution which reduces the balance in his Employer
Account when he has less than a one hundred percent (100%) vested and
nonforfeitable interest in the Account, the amount, if any, of the
Participant's vested and nonforfeitable interest in the undistributed balance
of said Account on his Accrual Date shall be transferred to a Segregated
Account and shall not be less than an amount ("X") determined by the formula:
X = P (AB + (R x D)) - (R x D). For purposes of applying the formula: P is the
vested percentage at the relevant time; AB is the account balance at the
relevant time; and D is the amount of the distribution; and R is the ratio of
the account balance at the relevant time to the account balance after
distribution.
A Participant who receives a distribution of an amount
deducted from his Employer Account when he has less than a one hundred percent
(100%) vested and nonforfeitable interest in his Employer Account and who
subsequently again becomes an Employee may repay the full amount of such
distribution before he incurs five (5) consecutive Breaks in Service following
the date of the distribution; provided, however, that in the event of repayment
neither the Trust nor the Employer shall be liable for any federal or state
income tax resulting from the distribution and the Participant shall indemnify
and hold harmless the Trust and the Employer for and from any such liability.
In the event of such repayment, the Employer Account of the Participant shall
be credited with the full amount of such repayment and the previously
undistributed balance. In the event the Participant fails to repay the full
amount of such distribution within the time permitted for repayment, the
non-vested and forfeitable portion of the previously undistributed balance of
his Employer Account which had been transferred to a Segregated Account shall
be deemed a forfeiture as of the last day of such period. If a Participant is
deemed to receive a distribution because his vested and nonforfeitable interest
at the time of his termination of employment is zero and the Participant
resumes employment covered under the Plan before the date the Participant
incurs five (5)
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<PAGE> 64
consecutive Breaks in Service, upon the reemployment of such Participant, the
employer-derived account balance of the Participant shall be restored to the
amount on the date of the deemed distribution.
2.5.5 In Service Distributions. If the Employer elects in
the Adoption Agreement to permit distributions to a Participant prior to his
termination of employment and the Plan does not take into account contributions
to provide Social Security benefits in the allocation of Employer
contributions, a Participant shall be entitled to receive a distribution of all
or part of his interest in the Plan upon filing a written request with the Plan
Administrator; provided that no distribution shall be made unless the interest
of the Participant in the Plan is fully vested and nonforfeitable and the
balance in the Participant's Accounts to be distributed have accumulated for at
least two (2) years or the individual has been a Participant for five (5) or
more Plan Years. Any distribution shall be subject to the written consent of
the Participant's spouse.
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ARTICLE VI
CONTINGENT TOP HEAVY PROVISIONS
2.6.1 Top Heavy Requirements. If the Plan becomes a Top
Heavy Plan during any Plan Year, the following provisions shall supersede any
conflicting provisions in the Plan or Adoption Agreement and apply for such
Plan Year:
(a) Except as otherwise provided below, the Employer
contributions and forfeitures allocated on behalf of any Participant
who is not a Key Employee shall not be less than the lesser of three
percent of such Participant's Compensation or in the case where the
Employer has no defined benefit plan which designates this plan to
satisfy Section 401 of the Code, the largest percentage of Employer
contributions and forfeitures, as a percentage of the first $200,000
of the Key Employee's compensation, allocated on behalf of any Key
Employee for that year. The minimum allocation is determined without
regard to any Social Security contribution. This minimum allocation
shall be made even though, under other plan provisions, the
Participant would not otherwise be entitled to receive an allocation,
or would have received a lesser allocation for the year because of (i)
the Participant's failure to complete 1,000 Hours of Service (or any
equivalent provided in the plan), or (ii) the Participant's failure to
make mandatory employee contributions to the plan, or (iii)
compensation less than a stated amount.
For purposes of computing the minimum allocation, Compensation
shall mean a Participant's W-2 compensation, calculated in the manner
provided in Section 1.2.8 of the Plan and the Adoption Agreement.
The minimum allocation provided above shall not apply to any
Participant who was not employed by the Employer on the last day of
the Plan Year.
The minimum allocation provided above shall not apply to any
Participant to the extent the Participant is covered under any other
plan or plans of the Employer and the Employer has provided in the
Adoption Agreement that the minimum allocation or benefit requirement
applicable to top-heavy plans will be met in the other plan or plans.
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<PAGE> 66
(b) The vested and nonforfeitable interest of each
Participant shall be equal to the percentage determined under the
vesting schedule specified in the Adoption Agreement if the Plan
becomes a Top Heavy Plan, or if no vesting schedule is specified, the
percentage determined under the following schedule:
<TABLE>
<CAPTION>
Years of Service Percentage
<S> <C>
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
</TABLE>
The top-heavy minimum vesting schedule applies to all benefits within
the meaning of Section 411(a)(7) of the Code, except those
attributable to employee contributions, including benefits accrued
before the effective date of Section 416 of the Code and benefits
accrued before the Plan becomes top-heavy.
If the Plan ceases to be a Top Heavy Plan, the vesting which occurs
while the Plan is a Top Heavy Plan shall not be cutback. Any minimum
allocation required (to the extent required to be nonforfeitable under
Section 416(b)) may not be forfeited under Section 411(a)(3)(B) or (D)
of the Code.
2.6.2 Top Heavy Definitions. The following terms, as used
in this Plan, shall have the following meaning:
(a) "Key Employee": An Employee or former employee who,
at any time during the Determination Period is either:
(i) an officer of the Employer having an Annual
Compensation greater than fifty (50%) percent of the amount in
effect under Section 415(b)(1)(A) of the Code;
(ii) an owner (or a person considered an owner
under Section 318 of the Code) of one of the ten largest
interests in the Employer if such individual's Annual
Compensation from the Employer is more than the limitation in
effect under Section 415(c)(1)(A) of the Code;
(iii) any person who owns directly or indirectly
more than five (5%) percent of the outstanding stock of the
Employer or stock possessing more than five (5%) percent of
the total combined voting power of all stock of the Employer
or, in the case of an unincorporated Employer, the capital or
profits interest in the Employer;
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<PAGE> 67
(iv) any person who owns directly or indirectly
more than one (1%) percent of the outstanding stock of the
Employer or stock possessing more than one (1%) percent of the
total combined voting power of all stock of the Employer or,
in the case of an unincorporated Employer, the capital or
profits interest in the Employer and having an Annual
Compensation from the Employer of more than $150,000; or
(v) any beneficiary of a Key Employee.
The determination of who is a Key Employee shall be made in accordance
with Section 416(i)(1) of the Code and the regulations thereunder.
(b) "Aggregation Group": Each qualified retirement plan
of the Employer in which a Key Employee is a participant and each
other qualified retirement plan of the Employer which enables any plan
in which a Key Employee is a participant to meet the requirements of
Section 401(a)(4) or Section 410 of the Code.
(c) "Annual Compensation": Compensation as defined in
Section 415(c)(3) of the Code, but including amounts contributed by
the Employer pursuant to a salary reduction agreement which are
excludible from the Employee's gross income under Section 125, Section
402(a)(8), Section 402(h) or Section 403(b) of the Code.
(d) "Top-Heavy Plan": For any Plan Year beginning after
December 31, 1983, the plan is top-heavy if any of the
following conditions exists:
(i) If the top-heavy ratio for the plan exceeds
60 percent and the plan is not part of any required
aggregation group or permissive aggregation group of plans.
(ii) If the plan is a part of a required
aggregation group of plans but not part of a permissive
aggregation group and the top-heavy ratio for the group of
plans exceeds 60 percent.
(iii) If the plan is a part of a required
aggregation group and part of a permissive aggregation group
of plans and the top-heavy ratio for the permissive
aggregation group exceeds 60 percent.
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(h) "Determination Date": For any plan year subsequent to
the first plan year, the last day of the preceding plan year. For the
first plan year of the plan, the last day of that year.
(i) "Valuation Date": The date elected by the Employer in
the Adoption Agreement as of which account balances or accrued
benefits are valued for purposes of calculating the top-heavy ratio.
(j) "Present Value": Present value shall be based only on
the interest and mortality rates specified in the Adoption Agreement.
(k) "Determination Period": The Plan Year containing the
Determination Date and the four (4) preceding Plan Year.
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<PAGE> 71
PART III
ARTICLE I
ACCOUNTING
3.1.1 Accounts. All income, profits, recoveries,
contributions and any and all monies, securities and properties of any kind at
any time received or held by the Trustee shall be held as a commingled Trust
Fund, except to the extent such assets are transferred to a Segregated Fund or
Controlled Fund. For accounting purposes, the Plan Administrator shall
establish and maintain certain Accounts for each Participant. An Employer
Account shall be established and maintained for each Participant, to which
shall be added the Participant's share of Employer contributions and
forfeitures. If a Participant has previously made voluntary non-deductible
employee contributions, the Plan Administrator shall establish and maintain a
Voluntary Account for the Participant. If, in accordance with any of the
provisions of the Plan, assets are either deposited initially or transferred to
a Segregated Fund for the benefit of a Participant, the Plan Administrator
shall establish and maintain a Segregated Account for the Participant. If a
Participant elects to exercise investment control over all or a portion of his
Accounts, the Plan Administrator shall establish and maintain a Controlled
Account for the Participant.
3.1.2 Adjustments. As of each Valuation Date each
Participant's Accounts shall be adjusted in the following order and manner.
(a) Distributions. Any distribution made to or on behalf
of a Participant since the last preceding Valuation Date shall be
deducted from the Participant's Account from which the distribution
was made.
(b) Insurance Premiums. Payments made since the last
preceding Valuation Date for Life Insurance Policies on the life of a
Participant (including without limitation payments of premiums and
interest on policy loans) shall be deducted from the Account of the
Participant from which the payment was made.
(c) Adjustment to Fair Market Value. The value of all
monies, securities and other property in the Trust Fund, excluding
Life Insurance Policies, shall be appraised by the Trustee at the then
fair market value. In determining such value, all income and
contributions, if any, received by the Trustee from the Employer or
Participants on account of such Year calculated under the method of
accounting of the Trust shall be included and there shall be deducted
all expenses determined in accordance with the method of accounting
adopted by the Plan Administrator.
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<PAGE> 72
If the total net value of the Trust Fund so determined exceeds (or is
less than) the total amount in the affected Accounts of all Participants, the
excess (or deficiency) shall be added to (or deducted from) the respective
Accounts of all Participants in the ratio that each such Participant's Account
bears to the total amount in all such Accounts.
(d) Adjustment of Segregated and Controlled Accounts. The value
of all monies, securities and other property in each Participant's Segregated
Account or Controlled Account, if any, but exclusive of Life Insurance
Policies, shall be appraised by the Trustee at the then fair market value. In
determining such value, all income calculated under the method of accounting of
the Trust shall be included and all expenses shall be deducted.
If the total net value of a Participant's Segregated Account or
Controlled Account, as the case may be, so determined exceeds (or is less than)
the previous balance in such Account, the excess (or deficiency) shall be added
to (or deducted from) the Participant's respective Account.
(e) Insurance Dividends. Dividends or credits received since the
last preceding Valuation Date on any Life Insurance Policy on the life of a
Participant shall be added to the Account of the Participant from which the
premiums for such Life Insurance Policy have been paid.
(f) Contributions and Forfeitures. Each Participant's Account
shall be increased by that portion of the contribution and forfeitures which is
allocated to him.
(g) Transfers to Segregated or Controlled Funds. To the extent
that funds in the Trust Fund attributable to a Participant's Account were
transferred since the last preceding Valuation Date or are to be transferred to
either a Segregated Fund or Controlled Fund pursuant to any of the provisions
of the Plan, the Account from which the funds were transferred shall be
decreased and the Account to which the funds were transferred shall be
increased.
(h) Transfers From Segregated Funds. To the extent that funds are
transferred from a Segregated Fund and/or Controlled Fund of a Participant to
the Trust Fund pursuant to any of the provisions of the Plan, the Account from
which the funds were transferred shall be decreased and the Account of the
Participant to which the funds were transferred shall be increased.
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(i) Time of Adjustments. Every adjustment to be made pursuant to
this Section shall be considered as having been made as of the applicable
Valuation Date regardless of the actual dates of entries, receipt by the
Trustee of contributions by the Participant or the Employer for such Year, or
the transfers of funds to or from Controlled or Segregated Funds. The
Trustee's determination as to valuation of trust assets and charges or credits
to the individual Accounts of the respective Participants shall be conclusive
and binding on all persons. If funds are transferred to a Controlled Fund as
of any date other than a Valuation Date pursuant to the terms of the Plan, the
adjustments to be made pursuant to this Section shall be made as of the date as
of which the transfer is made, as if such date is a Valuation Date.
If any Participant receives a distribution pursuant to the terms of the Plan as
of any date other than a Valuation Date, then the adjustments to be made
pursuant to this Section shall be made in the manner specified in the Adoption
Agreement.
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ARTICLE II
LIMITATIONS
3.2.1 Limitations on Annual Additions. If the Participant does not
participate in, and has never participated in another qualified plan
maintained by the Employer or a welfare benefit fund as defined in Section
419(e) of the Code maintained by the Employer, or an individual medical
account, as defined in Section 415(l)(2) of the Code, maintained by the
Employer, which provides an annual addition, subject to the adjustments
hereinafter set forth, the amount of annual additions which may be credited to
a Participant's Accounts during any Limitation Year shall in no event exceed
the lesser of (a) thirty thousand dollars ($30,000.00) or, if greater,
one-fourth of the dollar limitation in effect under Section 415(b)(1)(A) of the
Code as in effect for the Limitation Year or (b) twenty-five percent (25%) of
the Participant's Compensation for the Plan Year. The compensation limitation
referred to in (b) shall not apply to any contribution for medical benefits
(within the meaning of Section 401(h) or Section 419A(f)(2) of the Code) which
is otherwise treated as an annual addition under Section 415(l)(1) or
419A(d)(2) of the Code. If the Employer contribution that would otherwise be
contributed or allocated to the Participant's Account would cause the annual
additions for the Limitation Year to exceed the maximum permissible amount, the
amount contributed or allocated shall be reduced so that the annual additions
for the Limitation Year shall equal the maximum permissible amount. For these
purposes, the maximum permissible amount is the maximum annual additions
permitted on behalf of a Participant.
(a) Annual Additions. The term "annual additions" shall
mean, the sum of the following amounts credited to a Participant's Accounts for
the Limitation Year:
(i) Employer contributions;
(ii) Employee contributions;
(iii) Forfeitures; and
(iv) Amounts allocated after March 31, 1984, to an
individual medical account, as defined in Section 415(l)(2) of
the Code, which is part of a pension or annuity plan
maintained by the Employer and amounts derived from
contributions paid or accrued after December 31, 1985, in
taxable years ending after such date, which are attributable
to post-retirement medical benefits, allocated to the separate
account of a key employee, as defined in Section 419A(d)(3) of
the Code, under a welfare benefit fund as defined in Section
419(e) of the Code, maintained by the Employer.
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Any excess amounts applied under subsections (b) and (c) below to
reduce Employer contributions are considered annual additions for such
Limitation Year.
(b) Excessive Annual Additions. Prior to determining a
Participant's actual Compensation for a Limitation Year, the Employer
may determine the maximum permissible Annual Addition for the
Participant on the basis of a reasonable estimation of the
Participant's Compensation for the Limitation Year, uniformly
determined for all Participant's similarly situated. As soon as is
administratively feasible after the end of the Limitation Year, the
maximum permissible amount for the Limitation Year shall be determined
on the basis of the Participant's actual Compensation for the
Limitation Year. Any Excessive Annual Addition attributable to
nondeductible voluntary employee contributions made by a Participant
to the extent they reduce the excess amount shall be returned to the
Participant before any other adjustments are made.
If an excess amount still exists, and the Participant is
covered by the Plan at the end of the Limitation Year, the excess
amount in the Participant's Account shall be used to reduce Employer
contributions (including any allocation of forfeitures) for such
Participant in the next Limitation Year, and each succeeding
Limitation Year, if necessary. If an excess amount still exists, and
the Participant is not covered by the Plan at the end of a Limitation
Year, the excess amount shall be held unallocated in a suspense
account. The suspense account shall be applied to reduce future
Employer contributions for all remaining Participants in the next
Limitation Year, and each succeeding Limitation Year, if necessary.
If a suspense account is in existence at any time during a
particular Limitation Year, all amounts in the suspense account must
be allocated and reallocated to Participants' Accounts before any
Employer or any Employee contributions may be made to the Plan for
that Limitation Year. Excess amounts may not be distributed to
Participants or former Participants. If a suspense account is in
existence at any time during a Limitation Year, it shall not
participate in the allocation of the Trust's investment gains and
losses.
(c) Participation in Certain Other Plans. If in addition
to this Plan, the Participant is covered under another qualified
regional prototype defined contribution plan maintained by the
Employer, a welfare benefit fund, as defined in Section 419(e) of the
code maintained by the Employer, or an individual medical account, as
defined in Section 415(l)(2) of the Code, maintained
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by the Employer, which provides an Annual Addition during any
Limitation Year, the annual additions which may be credited to a
Participant's account under this Plan for any such Limitation Year
shall not exceed the maximum permissible amount reduced by the Annual
Additions credited to a Participant's Account under the other plans
and welfare benefit funds for the same Limitation Year. If the Annual
Additions with respect to the Participant under other defined
contribution plans and welfare benefit funds maintained by the
Employer are less than the maximum permissible amount and the Employer
contribution that would otherwise be contributed or allocated to the
Participant's Account under this Plan would cause the Annual Additions
for the Limitation Year to exceed this limitation, the amount
contributed or allocated shall be reduced so that the Annual Additions
under all such plans and funds for the Limitation Year shall equal the
maximum permissible amount. If the Annual Additions with respect to
the Participant under such other defined contribution plans and
welfare benefit funds in the aggregate are equal to or greater than
the maximum permissible amount, no amount will be contributed or
allocated to the Participant's Account under this Plan for the
Limitation Year.
Prior to determining the Participant's actual Compensation for
the Limitation Year, the Employer may determine the maximum
permissible amount for a Participant in the manner described in
subsection (b) above. As soon as is administratively feasible after
the end of the Limitation Year, the maximum permissible amount for the
Limitation Year shall be determined on the basis of the Participant's
actual Compensation for the Limitation Year.
If a Participant's Annual Additions under this Plan and such
other plans would result in an excess amount for a Limitation Year,
the excess amount shall be deemed to consist of the Annual Additions
last allocated, except that Annual Additions attributable to a welfare
benefit fund or individual medical account will be deemed to have been
allocated first regardless of the actual allocation date.
If the excess amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation date
of another plan, the excess amount attributed to this Plan will be the
product of:
(i) the total excess amount allocated as of such date, times
(ii) the ratio of (i) the Annual Additions allocated to the
Participant for the Limitation Year as of such date under this
Plan to (II) the total Annual Additions allocated to the
Participant for the Limitation Year as of
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such date under this and all the other qualified regional
prototype defined contribution plans. Any excess amount
attributed to this Plan will be disposed in the manner
described in subsection (b), above
If the Participant is covered under another qualified defined
contribution plan maintained by the Employer which is not a regional prototype
plan, Annual Additions which may be credited to the Participant's Account under
this Plan for any Limitation Year shall be limited as provided above as though
the other plan were a regional prototype plan unless the Employer specifies
other limitations in the Adoption Agreement.
For purposes hereof, the excess amount is the excess of the
Participant's annual additions for the Limitation Year over the maximum
permissible amount and a regional prototype plan is a plan the form of which is
the subject of a favorable opinion letter from the Internal Revenue Service.
If the Employer maintains, or at any time maintained, a qualified
defined benefit plan covering any Participant in this Plan, the sum of the
Participant's defined benefit plan fraction and defined contribution plan
fraction will not exceed 1.0 in any Limitation Year. The Annual Additions
which may be credited to the Participant's account under this Plan for any
Limitation Year shall be limited in the manner specified in the Adoption
Agreement.
(d) Combined Plan Limitation. In the event that a Participant in
this Plan participates in a defined benefit plan (as defined in the applicable
sections of the Code) maintained by the Employer, the sum of the "defined
benefit plan fraction" plus the "defined contribution plan fraction" shall at
no time exceed 1.0. Except to the extent that applicable law permits greater
amounts to be provided on behalf of a Participant, in which event such law is
hereby incorporated by reference, the foregoing fractions are defined as
follows. The "defined benefit plan fraction" for any year is a fraction (i)
the numerator of which is the projected annual benefit of the Participant under
all the defined benefit plans (whether or not terminated) maintained by the
Employer (determined as of the close of the year), and (ii) the denominator of
which is the lesser of (A) the product of 1.25 multiplied by the dollar
limitation determined for the Limitation Year under Sections 415(b) and (d) of
the Code, or (B) the product of 1.4 multiplied by one hundred (100%) percent of
the Participant's average compensation for the three (3) consecutive Years of
Service with the Employer that produces the highest average, including any
adjustments under Section 415(b) of the Code. Notwithstanding the above, if
the Participant was a Participant as of the first day of the first Limitation
Year beginning after December 31, 1986, in one
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or more defined benefit plans maintained by the Employer which were in
existence on May 6, 1986, the denominator of this fraction shall not be less
than 125 percent of the sum of the annual benefits under such plans which the
Participant had accrued as of the close of the last Limitation Year beginning
before January 1, 1987, disregarding any changes in the terms and conditions of
the Plan after May 5, 1986. The preceding sentence applies only if the defined
benefit plans individually and in the aggregate satisfied the requirements of
Section 415 for all Limitation Years beginning before January 1, 1987. The
"defined contribution fraction" for any year is a fraction (i) the numerator of
which is the sum of the annual additions to the Participant's accounts under
all defined contribution plans (whether or not terminated) maintained by the
Employer for the current and all prior Limitation Years, including the annual
additions attributable to the Participant's nondeductible employee
contributions to all defined benefit plans, whether or not terminated,
maintained by the Employer, and the annual additions attributable to all
welfare benefit funds and individual medical accounts (as defined in Sections
419(e) and 415(l)(2) of the Code) maintained by the Employer, and (ii) the
denominator of which is the sum of the lesser of the following amounts
determined for the current year and for all prior limitation years of service
with the Employer, regardless of whether a defined contribution plan was
maintained by the Employer: (A) the product of 1.25 multiplied by the dollar
limitation determined under Sections 415(b) and (d) of the Code in effect under
Section 415(c)(1)(A) of the Code, or (B) thirty-five (35%) percent of the
Participant's compensation from the Employer for such plan year. If the
Employee was a Participant as of the end of the first day of the first
Limitation Year beginning after December 31, 1986, in one or more defined
contribution plans maintained by the Employer which were in existence on May 6,
1986, the numerator of this fraction will be adjusted if the sum of this
fraction and the defined benefit fraction would otherwise exceed 1.0 under the
terms of this Plan. Under the adjustment, an amount equal to the product of
(1) the excess of the sum of the fractions over 1.0 times (2) the denominator
of this fraction, shall be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they would be
computed as of the end of the last Limitation Year beginning before January 1,
1987, and disregarding any changes in the terms and conditions of the Plan made
after May 5, 1986, but using the Section 415 limitation applicable to the first
Limitation Year beginning on or after January 1, 1987.
The annual addition for any Limitation Year beginning before January
1, 1987, shall not be recomputed to treat all employee contributions as annual
additions.
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The projected annual benefits under a defined benefit plan is the
annual retirement benefit (adjusted to an actuarially equivalent straight life
annuity if such benefit is expressed in a form other than a straight life
annuity) or qualified joint and survivor annuity) to which the Participant would
be entitled under the terms of the Plan assuming the Participant continues
employment until normal retirement age under the plan (or current age, if
later), and the Participant's compensation for the current Limitation Year and
all other relevant factors used to determine benefits under the Plan remain
constant for all future Limitation Years.
(e) Special Transition Rule for Defined Contribution Fraction. At
the election of the Plan Administrator, in applying the provisions of subsection
(d) above with respect to the defined contribution plan fraction for any year
ending after December 31, 1982, the amount taken into account for the
denominator for each Participant for all years ending before January 1, 1983
shall be an amount equal to the product of the amount of the denominator
determined under subsection (d) above for the year ending in 1982, multiplied by
the "transition fraction". The "transition fraction" is a fraction (i) the
numerator of which is the lesser of (A) $51,875 or (B) 1.4 multiplied by
twenty-five (25%) percent of the Participant's compensation for the year ending
in 1981, and (ii) the denominator of which is the lesser of (A) $41,500 or (B)
twenty-five (25%) percent of the Participant's compensation for the year ending
in 1981.
(f) Special Transition Rule for Excess Benefits. Provided that
the Plan satisfied the requirements of Section 415 of the Code for the last
Plan Year beginning before January 1, 1983, an amount shall be subtracted from
the numerator of the defined contribution plan fraction (not exceeding such
numerator) so that the sum of the defined benefit plan fraction and the defined
contribution fraction computed in accordance with Section 415(e)(1) of the Code
(as amended by the Tax Equity and Fiscal Responsibility Act of 1982) does not
exceed 1.0 for such year, in accordance with regulations issued by the
Secretary of the Treasury pursuant to the applicable provisions of the Code.
(g) Employer. For purposes of this Section, employer shall mean
the Employer that adopts this Plan and all members of a group of employers which
constitutes a controlled group of corporations or trades or businesses under
common control (as defined in Sections 414(b) and (c) of the Code, as modified
by Section 415(h) of the Code), or an affiliated service group (as defined in
Section 414(m) of the Code) of which the adopting employer is a part and any
other entity required to be aggregated with the Employer under Section 414(o) of
the Code and the regulations issued thereunder.
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(h) Compensation. For purposes of this Section as elected in the
Adoption Agreement by the Employer, Compensation shall mean all of a
Participant's:
(i) Section 3121 Wages. Wages as defined in Section
3121(a) of the Code for purposes of calculating social security taxes,
but determined without regard to the wage base limitation in Section
3121(a)(1), the limitations on the exclusions from wages in Section
3121(a)(5)(C) and (D) for elective contributions and payments by
reason of salary reduction agreements, the special rules in Section
3121(v), any rules that limit covered employment based on the type or
location of an employee's employer and any rules that limit the
remuneration included in wages based on familial relationship or based
on the nature or location of the employment or the services performed
(such as the exceptions to the definition of employment in Section
3121(b)(1) through (20) of the Code).
(ii) Section 3401(a) Wages. Wages as defined in Section
3401(a) of the Code for the purposes of income tax withholding at the
source but determined without regard to any rules that limit the
remuneration included in wages based on the nature or location of the
employment or the services performed (such as the exception for
agricultural labor in Section 3401(a)(2) of the Code).
(iii) Section 415 Safe-harbor Compensation. Wages,
salaries and fees for professional services and other amounts received
for personal services actually rendered in the course of employment
for the Employer (including but not limited to commissions paid
salesmen, compensation for services on the basis of a percentage of
profits, commissions on insurance premiums, tips, bonuses, fringe
benefits, reimbursements and expense allowances), but excluding:
(I) Employer contributions to a plan of deferred
compensation which are not includible in the Employee's gross
income for the taxable year in which contributed, or employer
contributions under a simplified employee pension plan to the
extent such contributions are deductible by the Employee or
any distributions from a plan of deferred compensation;
(II) Amounts realized from the exercise of a
nonqualified stock option or when restricted stock or property
held by the Employee is no longer subject to a substantial
risk of forfeiture or becomes freely transferable.
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(III) Amounts realized from the sale, exchange or
other disposition of stock acquired under an incentive stock
option; and
(IV) Other amounts which received special tax
benefits or contributions made by the Employer (whether or not
under a salary reduction agreement) towards the purchase of an
annuity described in Section 403(b) of the Code (whether or
not the amounts are actually excludible from the gross income
of the Employee).
For any self-employed individual, compensation shall mean earned
income. For limitation years beginning after December 31, 1991, for
purposes of applying the limitations of this Article, Compensation for
a Limitation Year is the Compensation actually paid or includible in
gross income during such Limitation Year.
(i) Short Limitation Year. If the Limitation Year is
amended to a different twelve (12) consecutive month period, the new
Limitation Year must begin within the Limitation Year in which the
amendment is made. If a short Limitation Year is created because of
an amendment changing the Limitation Year to a different twelve (12)
consecutive month period, the maximum annual addition shall not exceed
the defined contribution dollar limitation determined in accordance
with Section 415(c)(1)(A) of the Code then in effect multiplied by a
fraction, the numerator of which is the number of months in the short
Limitation Year and the denominator of which is twelve (12).
3.2.2 Controlled Businesses. If this plan provides
contributions or benefits for one or more owner-employees who control both the
business for which this plan is established and one or more other trades or
businesses, this plan and the plan established for other trades or businesses
must, when looked at as a single plan, satisfy sections 401(a) and (d) for the
employees of this and all other trades or businesses.
If the plan provides contributions or benefits for one or more
owner-employees who control one or more other trades or businesses, the
employees of the other trades or businesses must be included in a plan which
satisfies sections 401(a) and (d) and which provides contributions and benefits
not less favorable than provided for owner-employees under this plan.
If an individual is covered as an owner-employee under the
plans of two or more trades or businesses which are not controlled and the
individual controls a trade or business, then the contributions or benefits of
the employees under the plan of the trades or
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businesses which are controlled must be as favorable as those provided for him
under the most favorable plan of the trade or business which is not controlled.
For purposes of the preceding paragraphs, an owner-employee,
or two or more owner-employees, will be considered to control a trade or
business if the owner-employee, or two or more owner-employees together:
(a) own the entire interest in an unincorporated trade or
business, or
(b) in the case of a partnership, own more than 50
percent of either the capital interest or the profits interest in the
partnership.
For purposes of the preceding sentence, an owner-employee, or
two or more owner-employees shall be treated as owning any interest in a
partnership which is owned, directly or indirectly, by a partnership which such
owner-employee, or such two or more owner-employees, are considered to control
within the meaning of the preceding sentence.
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ARTICLE III
FIDUCIARIES
3.3.1 Standard of Conduct. The duties and responsibilities
of the Plan Administrator and the Trustee with respect to the Plan shall be
discharged (a) in a non-discriminatory manner; (b) for the exclusive benefit of
Participants and their Beneficiaries; (C) by defraying the reasonable expenses
of administering the Plan; (d) with the care, skill, prudence, and diligence
under the circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; (e) by diversifying the
investments of the Plan so as to minimize the risk of large losses, unless
under the circumstances it is clearly prudent not to do so; and (f) in
accordance with the documents and instruments governing the Plan insofar as
such documents and instruments are consistent with the provisions of the Act.
3.3.2 Individual Fiduciaries. At any time that a group of
individuals is acting as Plan Administrator or Trustee, the number of such
persons who shall act in such capacity from time to time shall be determined by
the Employer. Such persons shall be appointed by the Employer and may or may
not be Participants or Employees of the Employer. Any action taken by a group
of individuals acting as either Plan Administrator or Trustee shall be taken at
the direction of a majority of such persons, or, if the number of such persons
is two (2), by unanimous consent.
3.3.3 Disqualification from Service. No person shall be
permitted to serve as a Fiduciary, custodian, counsel, agent or employee of the
Plan or as a consultant to the Plan who has been convicted of any of the
criminal offenses specified in the Act.
3.3.4 Bonding. Except as otherwise permitted by law, each
Fiduciary or person who handles funds or other property or assets of the Plan
shall be bonded in accordance with the requirements of the Act.
3.3.5 Prior Acts. No Fiduciary shall be liable for any
acts occurring prior to the period of time during which the Fiduciary was
actually serving in such capacity with respect to the Plan.
3.3.6 Insurance and Indemnity. The Employer may purchase
or cause the Trustee to purchase and keep current as an authorized expense
liability insurance for the Plan, its Fiduciaries, and any other person to whom
any financial or other administrative responsibility with respect to the Plan
and Trust is allocated or
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delegated, from and against any and all liabilities, costs and expenses
incurred by such persons as a result of any act or omission to act in
connection with the performance of the duties, responsibilities and obligations
under the Plan and under the Act; provided that any such insurance policy
purchased with Plan assets permits subrogation by the Insurer against the
Fiduciary in the case of breach by such Fiduciary. Unless otherwise determined
and communicated to affected parties by the Employer, the Employer shall
indemnify and hold harmless each such person, other than a corporate trustee,
for and from any such liabilities, costs and expenses which are not covered by
any such insurance, except to the extent that any such liabilities, costs or
expenses are judicially determined to be due to the gross negligence or willful
misconduct of such person. No Plan assets may be used for any such
indemnification.
3.3.7 Expenses. Expenses incurred by the Plan
Administrator or the Trustee in the administration of the Plan and the Trust,
including fees for legal services rendered, such compensation to the Trustee as
may be agreed upon in writing from time to time between the Employer and the
Trustee, and all other proper charges and expenses of the Plan Administrator or
the Trustee and of their agents and counsel shall be paid by the Employer, or
at its election at any time or from time to time, may be charged against the
assets of the Trust, but until so paid shall constitute a charge upon the
assets of the Trust. All taxes of any and all kinds whatsoever which may be
levied or assessed under existing or future laws upon the assets of the Trust
or the income thereof shall be paid from such assets. Notwithstanding the
foregoing, no compensation shall be paid to any Employee for services rendered
under the Plan and Trust as a Trustee.
3.3.8 Agents, Accountants and Legal Counsel. The Plan
Administrator shall have authority to employ suitable agents, custodians,
investment counsel, accountants and legal counsel who may, but need not be,
legal counsel for the Employer. The Plan Administrator and the Trustee shall
be fully protected in acting upon the advice of such persons. The Trustee
shall at no time be obliged to institute any legal action or to become a party
to any legal action unless the Trustee has been indemnified to the Trustee's
satisfaction for any fees, costs and expenses to be incurred in connection
therewith.
3.3.9 Investment Manager. The Employer may employ as an
investment manager or managers to manage all or any part of the Trust Fund any
(i) investment advisor registered under the Investment Advisors Act of 1940;
(ii) bank as defined in said Act; or (iii) insurance company qualified to
perform investment management services in more than one state. Any investment
manager shall have all powers of the Trustee in the management of such part of
the Trust Fund, including the power to acquire or dispose of assets. In the
event an
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investment manager is so appointed, the Trustee shall not be liable for the
acts or omissions of such investment manager or be under any obligation to
invest or otherwise manage that part of the Trust Fund which is subject to the
management of the investment manager. The Employer shall notify the Trustee in
writing of any appointment of an investment manager, and shall provide the
Trustee with the investment manager's written acknowledgment that it is a
fiduciary with respect to the Plan.
3.3.10 Finality of Decisions or Acts. Except for the right
of a Participant or Beneficiary to appeal the denial of a claim, any decision
or action of the Plan Administrator or the Trustee made or done in good faith
upon any matter within the scope of authority and discretion of the Plan
Administrator or the Trustee shall be final and binding upon all persons. In
the event of judicial review of actions taken by any Fiduciary within the scope
of his duties in accordance with the terms of the Plan and Trust, such actions
shall be upheld unless determined to have been arbitrary and capricious.
3.3.11 Certain Custodial Accounts and Contracts. The term
"Trustee" as used herein will also include a person holding the assets of a
custodial account, an annuity contract or other contract which is treated as a
qualified trust pursuant to Section 401(f) of the Code and references to the
Trust Fund shall be construed to apply to such custodial account, annuity
contract or other contract.
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ARTICLE IV
PLAN ADMINISTRATOR
3.4.1 Administration of Plan. The Plan Administrator
shall be designated by the Employer from time to time. The primary
responsibility of the Plan Administrator is to administer the Plan for the
exclusive benefit of the Participants and their Beneficiaries, subject to the
specific terms of the Plan. The Plan Administrator shall administer the Plan
and shall construe and determine all questions of interpretation or policy in a
manner consistent with the Plan and the Adoption Agreement. The Plan
Administrator may correct any defect, supply any omission, or reconcile any
inconsistency in such manner and to such extent as he shall deem necessary or
advisable to carry out the purpose of the Plan; provided, however, that any
interpretation or construction shall be done in a nondiscriminatory manner and
shall be consistent with the intent that the Plan shall continue to be a
qualified Plan pursuant to the Code, and shall comply with the terms of the
Act. The Plan Administrator shall have all powers necessary or appropriate to
accomplish his duties under the Plan.
(a) The Plan Administrator shall be charged with the
duties of the general administration of the Plan, including but not
limited to the following:
(1) To determine all questions relating to the
eligibility of an Employee to participate in the Plan or to
remain a Participant hereunder.
(2) To compute, certify and direct the Trustee
with respect to the amount and kind of benefits to which any
Participant shall be entitled hereunder.
(3) To authorize and direct the Trustee with
respect to all disbursements from the Trust Fund.
(4) To maintain all the necessary records for the
administration of the Plan.
(5) To interpret the provisions of the Plan and
to make and publish rules and regulations for the Plan as the
Plan Administrator may deem reasonably necessary for the
proper and efficient administration of the Plan and consistent
with its terms.
(6) To select the Insurer to provide any Life
Insurance Policy to be purchased for any Participant hereunder.
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(7) To advise the Trustee regarding the short and
long-term liquidity needs of the Plan in order that the
Trustee might direct its investment accordingly.
(8) To advise, counsel and assist any Participant
regarding any rights, benefits or elections available under
the Plan.
(b) The Plan Administrator shall also be responsible for
preparing and filing such annual disclosure reports and tax forms as
may be required from time to time by the Secretary of Labor, the
Secretary of the Treasury or other governmental authorities.
(c) Whenever it is determined by the Plan Administrator
to be in the best interest of the Plan and its Participants or
Beneficiaries, the Plan Administrator may request such variances,
deferrals, extensions, or exemptions or make such elections for the
Plan as may be available under the law.
(d) The Plan Administrator shall be responsible for
procuring bonding for all persons dealing with the Plan or its assets
as may be required by law.
(e) In the event this Plan is required to file reports or
pay premiums to the Pension Benefit Guaranty Corporation, the Plan
Administrator shall have the duty to prepare and make such filings, to
pay any premiums required, whether for basic or contingent liability
coverage, and shall be charged with the responsibility of notifying
all necessary parties of such events and under such circumstances as
may be required by law.
3.4.2 Disclosure Requirements. Every Participant covered
under the Plan and every Beneficiary receiving benefits under the Plan shall
receive from the Plan Administrator a summary plan description, and such other
information as may be required by law or by the terms of the Plan.
3.4.3 Information Generally Available. The Plan
Administrator shall make copies of this Plan and Trust, the Adoption Agreement,
the summary plan description, latest annual report, Life Insurance Policies, or
other instruments under which the Plan was established or is operated available
for examination by any Participant or Beneficiary in the principal office of
the Plan Administrator and such other locations as may be necessary to make
such information reasonably accessible to all interested parties. Subject to a
reasonable charge to defray the cost of furnishing such copies, the Plan
Administrator shall, upon written request of any Participant or Beneficiary,
furnish a copy of any of the above documents to the respective party.
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3.4.4 Statement of Accrued Benefit. Upon written request
to the Plan Administrator once during any twelve (12) month period, a
Participant or Beneficiary shall be furnished with a written statement, based
on the latest available information, of his then vested accrued benefit and the
earliest date upon which the same will become fully vested and nonforfeitable.
The statement shall also include a notice to the Participant of any benefits
which are forfeitable if the Participant dies before a certain date.
3.4.5 Explanation of Rollover Treatment. The Plan
Administrator shall, when making a distribution eligible for rollover
treatment, provide a written explanation to the recipient of the provisions
under which such distribution will not be subject to tax if transferred to an
eligible retirement plan within sixty (60) days after the date on which the
recipient received the distribution and, if applicable, the provisions of law
pertaining to the tax treatment of lump sum distributions.
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ARTICLE V
TRUSTEE
3.5.1 Acceptance of Trust. The Trustee, by joining in the
execution of the Adoption Agreement to the Plan, agrees to act in accordance
with the express terms and conditions hereof.
3.5.2 Trustee Capacity - Co-Trustees. The Trustee may be a
bank, trust company or other corporation possessing trust powers under
applicable state or federal law or one or more individuals or any combination
thereof. When there are two or more Trustees, they may allocate specific
responsibilities, obligations or duties among themselves by their written
agreement. An executed copy of such written agreement shall be delivered to
and retained by the Plan Administrator.
3.5.3 Resignation, Removal, and Successors. Any Trustee
may resign at any time by delivering to the Employer a written notice of
resignation to take effect at a date specified therein, which shall not be less
than thirty (30) days after the delivery thereof; the Employer may waive such
notice. The Trustee may be removed by the Employer with or without cause, by
tendering to the Trustee a written notice of removal to take effect at a date
specified therein. Upon such removal or resignation of a Trustee, the Employer
shall either appoint a successor Trustee who shall have the same powers and
duties as those conferred upon the resigning or discharged Trustee, or, if a
group of individuals is acting as Trustee, determine that a successor shall not
be appointed and the number of Trustees shall be reduced by one (1).
3.5.4 Consultations. The Trustee shall be entitled to
advice of counsel, which may be counsel for the Plan or the Employer, in any
case in which the Trustee shall deem such advice necessary. The Trustee shall
not be liable for any action taken or omitted in good faith reliance upon the
advice of such counsel. With the exception of those powers and duties
specifically allocated to the Trustee by the express terms of the Plan, it
shall not be the responsibility of the Trustee to interpret the terms of the
Plan and the Trustee may request, and is entitled to receive, guidance and
written direction from the Plan Administrator on any point requiring
construction or interpretation of the Plan documents.
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3.5.5 Rights, Powers and Duties. The rights, powers and
duties of the Trustee shall be as follows:
(a) The Trustee shall be responsible for the safekeeping
of the assets of the Trust Fund in accordance with the provisions of
the Plan, and any amendments hereto. The duties of the Trustee under
the Plan shall be determined solely by the express provisions hereof
and no other further duties or responsibilities shall be implied.
Subject to the terms of this Plan, the Trustee shall be fully
protected and shall incur no liability in acting in reliance upon the
written instructions or directions of the Employer, the Plan
Administrator, a duly designated investment manager, or any other
named Fiduciary.
(b) The Trustee shall have all powers necessary or
convenient for the orderly and efficient performance of its duties
hereunder, including but not limited to those specified in this
Section. The Trustee shall have the power generally to do all acts,
whether or not expressly authorized, which the Trustee in the exercise
of its fiduciary responsibility may deem necessary or desirable for
the protection of the Trust Fund and the assets thereof.
(c) The Trustee shall have the power to collect and
receive any and all monies and other property due hereunder and to
give full discharge and release therefor; to settle, compromise or
submit to arbitration any claims, debts or damages due to or owing to
or from the Trust Fund; to commence or defend suits or legal
proceedings wherever, in the Trustee's judgment, any interest of the
Trust Fund requires it; and to represent the Trust Fund in all suits
or legal proceedings in any court of law or equity or before any other
body or tribunal.
(d) The Trustee shall cause any Life Insurance Policies
or assets of the Trust Fund to be registered in its name as Trustee
and shall be authorized to exercise any and ail ownership rights
regarding these assets, subject to the terms of the Plan.
(e) The Trustee may temporarily hold cash balances and
shall be entitled to deposit any funds received in a bank account in
the name of the Trust Fund in any bank selected by the Trustee,
including the banking department of a corporate Trustee, if any,
pending disposition of such funds in accordance with the Plan. Any
such deposit may be made with or without interest.
(f) The Trustee shall pay the premiums and other charges
due and payable at any time on any Life Insurance Policies as it may
be directed by the Plan Administrator, provided funds for such
payments are then available in the Trust. The Trustee shall be
responsible only for such funds and Life Insurance Policies as
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shall actually be received by it as Trustee hereunder, and shall have
no obligation to make payments other than from such funds and cash
values of Life Insurance Policies.
(g) If the whole or any part of the Trust Fund shall
become liable for the payment of any estate, inheritance, income or
other tax which the Trustee shall be required to pay, the Trustee
shall have full power and authority to pay such tax out of any monies
or other property in its hands for the account of the person whose
interest hereunder is so liable. Prior to making any payment, the
Trustee may require such releases or other documents from any lawful
taxing authority as it shall deem necessary. The Trustee shall not be
liable for any nonpayment of tax when it distributes an interest
hereunder on instructions from the Plan Administrator.
(h) The Trustee shall keep a full, accurate and detailed
record of all transactions of the Trust which the Employer and the
Plan Administrator shall have the right to examine at any time during
the Trustee's regular business hours. As of the close of each Plan
Year, the Trustee shall furnish the Plan Administrator with a
statement of account setting forth all receipts, disbursements and
other transactions effected by the Trustee during the year. The Plan
Administrator shall promptly notify the Trustee in writing of his
approval or disapproval of the account. The Plan Administrator's
failure to disapprove the account within sixty (60) days after receipt
shall be considered an approval. Except as otherwise required by law,
the approval by the Plan Administrator shall be binding as to all
matters embraced in any statement to the same extent as if the account
of the Trustee had been settled by judgment or decree of a court of
competent jurisdiction under which the Trustee, Employer and all
persons having or claiming any interest in the Trust Fund were
parties; provided, however, that the Trustee may have its account
judicially settled if it so desires.
(i) The Trustee is hereby authorized to execute all
necessary receipts and releases to any parties concerned; and shall be
under a duty, upon being advised by the Plan Administrator that the
proceeds of any Life Insurance Policies are payable, to give
reasonable assistance to the Beneficiary designated therein in
collecting such sums as may appear to be due.
(j) If, at any time, as the result of the death of the
Participant there shall be a dispute as to the person to whom payment
or delivery of monies or property should be made by the Trustee, or
regarding any action to be taken by the Trustee, the
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Trustee may postpone such payment, delivery or action, retaining the
funds or property involved, until such dispute shall have been
resolved in a court of competent jurisdiction or the Trustee shall
have been indemnified to its satisfaction or until it has received
written direction from the Plan Administrator.
(k) Anything in this instrument to the contrary
notwithstanding, the Trustee shall have no duty or responsibility with
respect to the determination of matters pertaining to the eligibility
of any Employee to become or remain a Participant hereunder, the
amount of benefit to which any Participant or Beneficiary shall be
entitled hereunder, or the size and type of any Life Insurance Policy
to be purchased from any Insurer for any Participant hereunder; all
such responsibilities being vested in the Plan Administrator.
3.5.6 Trustee Indemnification. The Employer shall
indemnify and hold harmless the Trustee for and from the assertion or
occurrence of any liability to a Participant or Beneficiary for any action
taken or omitted by the Trustee pursuant to any written direction to the
Trustee from the Employer or the Plan Administrator. Such indemnification
obligation of the Employer shall not be applicable to the extent that any such
liability is covered by insurance.
3.5.7 Changes in Trustee Authority. If a successor Trustee
is appointed, neither an Insurer nor any other person who has previously had
dealings with the Trustee shall be chargeable with knowledge of such
appointment or such change until furnished with notice thereof. Until such
notice, the Insurer and any other such party shall be fully protected in
relying on any action taken or signature presented which would have been proper
in accordance with that information previously received.
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ARTICLE VI
TRUST ASSETS
3.6.1 Trustee Exclusive Owner. All assets held by the
Trustee, whether in the Trust Fund or Segregated Funds, shall be owned
exclusively by the Trustee and no Participant or Beneficiary shall have any
individual ownership thereof. Participants and their Beneficiaries shall share
in the assets of the Trust, its net earnings, profits and losses, only as
provided in this Plan.
3.6.2 Investments. The Trustee shall invest and reinvest
the Trust Fund without distinction between income or principal in one or more
of the following ways as the Trustee shall from time to time determine:
(a) The Trustee may invest the Trust Fund or any portion
thereof in obligations issued or guaranteed by the United States of
America or of any instrumentalities thereof, or in other bonds, notes,
debentures, mortgages, preferred or common stocks, options to buy or
sell stocks or other securities, mutual fund shares, limited
partnership interests, commodities, or in such other property, real or
personal, as the Trustee shall determine.
(b) The Trustee may cause the Trust Fund or any portion
thereof to be invested in a common trust fund established and
maintained by a national bank for the collective investment of
fiduciary funds, providing such common trust fund is a qualified trust
under the applicable section of the Code, or corresponding provisions
of future federal internal revenue laws and is exempt from income tax
under the applicable section of the Code. In the event any assets of
the Trust Fund are invested in such a common trust fund, the
Declaration of Trust creating such common trust fund, as it may be
amended from time to time, shall be incorporated into this Plan by
reference and made a part hereof.
(c) The Trustee may deposit any portion of the Trust Fund
in savings accounts in federally insured banks or savings and loan
associations or invest in certificates of deposit issued by any such
bank or savings and loan association. The Trustee may, without
liability for interest, retain any portion of the Trust Fund in cash
balances pending investment thereof or payment of expenses.
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(d) The Trustee may buy and sell put and call options,
covered or uncovered, engage in spreads, straddles, ratio writing and
other forms of options trading, including sales of options against
convertible bonds, and sales of Standard & Poor futures contracts, and
trade in and maintain a brokerage account on a cash or margin basis.
(e) The Trustee may invest any portion or all of the
assets of the Trust Fund which are attributable to the vested and
nonforfeitable interest in the Accounts of a Participant in the
purchase of group or individual Life Insurance Policies issued on the
life of and for the benefit of the Participant with the consent of the
Participant, subject to the following conditions:
(i) The aggregate premiums paid for ordinary
whole Life Insurance Policies with both nondecreasing death
benefits and nonincreasing premiums on the life of any
Participant shall not at any time exceed forty-nine percent
(49%) of the aggregate amount of Employer contributions which
have been allocated to the Accounts of such Participant.
(ii) The aggregate Premiums paid for Life
Insurance Policies on the life of any Participant which are
either term, universal or any other contracts which are not
ordinary whole life policies shall not at any time exceed
twenty-five percent (25%) of the aggregate amount of Employer
contributions which have been allocated to the Accounts of
such Participant.
(iii) The sum of one-half of the aggregate premiums
for ordinary whole Life Insurance Policies and all premiums
for other Life Insurance Policies shall not at any time exceed
twenty-five percent (25%) of the aggregate amount of Employer
contributions which have been allocated to the Accounts of
such Participant.
(iv) If the Employer elects in the Adoption
Agreement to permit distributions to a Participant prior to
his termination of employment in accordance with Section 5.5
and the Plan does not take into account contributions to
provide Social Security Benefits in the allocation of Employer
contributions, the amount which may be distributed to the
Participant may be applied to the purchase of Life Insurance
Policies.
(f) The Trustee may invest the Trust Fund or any portion
thereof to acquire or hold Qualifying Employer Securities or Real
Property, provided that the portion so invested shall not exceed the
amount allowed as an investment under the Act.
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3.6.3 Administration of Trust Assets. Subject to the
limitations herein expressly set forth, the Trustee shall have the following
powers and authority in connection with the administration of the assets of the
Trust:
(a) To hold and administer all contributions made by the
Employer to the Trust Fund and all income or other property derived
therefrom as a single Trust Fund, except as otherwise provided in the
Plan.
(b) To manage, control, sell, convey, exchange, petition,
divide, subdivide, improve, repair, grant options, sell upon deferred
payments, lease without limit as determined for any purpose,
compromise, arbitrate or otherwise settle claims in favor of or
against the Trust Fund, institute, compromise and defend actions and
proceedings, and to take any other action necessary or desirable in
connection with the administration of the Trust Fund.
(c) To vote any stock, bonds, or other securities of any
corporation or other issuer; otherwise consent to or request any
action on the part of any such corporation or other issuer; to give
general or special proxies or powers of attorney, with or without
power of substitution; to participate in any reorganization,
recapitalization, consolidation, merger or similar transaction with
respect to such securities; to deposit such stocks or other securities
in any voting trusts, or with any protective or like committee, or
with the trustee, or with the depositories designated thereby; to
exercise any subscription rights and conversion privileges or other
options and to make any payments incidental thereto; and generally to
do all such acts, execute all such instruments, take all such
proceedings and exercise all such rights, powers and privileges with
respect to the stock or other securities or property constituting the
Trust Fund as if the Trustee were the absolute owner thereof.
(d) To apply for and procure, at the election of any
Participant, Life Insurance Policies on the life of the Participant;
to exercise whatever rights and privileges may be granted to the
Trustee under such Policies, and to cash in, receive and collect such
Policies or the proceeds therefrom as and when entitled to do so under
the provisions thereof;
(e) To make, execute, acknowledge and deliver any and all
documents of transfer and conveyance and any and all other instruments
that may be necessary or appropriate to carry out the powers herein
granted;
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(f) To register any investment held in the Trust in the
Trustee's own name or in the name of a nominee and to hold any
investment in bearer form, but the books and records of the Trustee
shall at all times show that all such investments are part of the
Trust;
(g) To borrow money for the purposes of the Plan in such
amounts and upon such terms and conditions as the Trustee deems
appropriate;
(h) To commingle the assets of the Trust Fund with the
assets of other similar trusts which are exempt from income tax,
whether sponsored by the Employer, an affiliate of the Employer or an
unrelated employer, provided that the books and records of the Trustee
shall at all times show the portion of the commingled assets which are
part of the Trust; and
(i) To do all acts whether or not expressly authorized
which the Trustee may deem necessary or proper for the protection of
the property held hereunder.
3.6.4 Segregated Funds. Unless otherwise determined by the
Trustee to be prudent, the Trustee shall invest and reinvest each Segregated
Fund without distinction between income or principal in one or more
appropriately identified interest-bearing accounts or certificates of deposit
in the name of the Trustee and subject solely to the dominion of the Trustee in
a banking institution (which may or may not be the Trustee, if the Trustee is a
banking institution) or savings and loan association. Any such account or
certificate shall bear interest at a rate not less than the rate of interest
currently being paid upon regular savings accounts by that banking corporation
principally situated in the community in which the Employer has its principal
business location, which has capital, surplus and undivided profits exceeding
those of any other bank so situated. Such accounts shall be held for the
benefit of the Participant for whom such Segregated Fund is established in
accordance with the terms of the Plan and the Segregated Account of the
Participant shall be credited with any interest earned in connection with such
accounts. If the Trustee determines that an alternative investment is
appropriate, the Trustee may invest the Segregated Fund in any manner permitted
with respect to the Trust Fund and such Segregated Fund shall be credited with
the net income or loss or net appreciation or depreciation in value of such
investments. No Segregated Fund shall share in any Employer contributions or
forfeitures, any net income or loss from, or net appreciation or depreciation
in value of, any investments of the Trust Fund, or any allocation for which
provision is made in this Plan which is not specifically attributable to the
Segregated Fund.
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3.6.5 Investment Control Option. If the Employer elects in
the Adoption Agreement to permit Participants to direct the investment of their
Accounts, each Participant may elect to have transferred to a Controlled Fund
and exercise investment control with respect to funds in the Trust Fund which do
not exceed the balances in his Accounts. To the extent that the balance in the
Participant's Account with respect to which a transfer is to be made includes
his share of an Employer contribution which has not been received by the
Trustee, such transfer shall not be made until such contribution is received by
the Trustee. In addition to the foregoing election, each Participant who has a
Segregated Fund may elect to have transferred to a Controlled Fund any portion
or all of such Segregated Fund. Funds so transferred to a Controlled Fund on
behalf of the Participant shall be thereafter invested by the Trustee in such
bonds, notes, debentures, commodities, mortgages, equipment trust certificates,
investment trust certificates, preferred or common stocks, partnership
interests, life insurance policies, including universal life insurance policies,
or in such other property, real or personal (other than collectibles), wherever
situated, as the Participant shall direct from time to time in writing;
provided, however, that the Participant may not direct the Trustee to make loans
to himself, nor to make loans to the Employer; and provided further that the
Trustee may limit the investment alternatives available to the Participant in a
uniform and nondiscriminatory manner but taking into account whether the
interest of the Participant is fully vested and nonforfeitable. Any such
election shall be made by the Participant giving notice thereof to the Trustee
as the Trustee deems necessary and such notice shall specify the amount of such
funds to be transferred and the Account from which the transfer is to be made.
Any such election with respect to a Segregated Fund shall be made by the
Participant giving the Trustee notice as the Trustee deems necessary and such
notice shall specify the date the transfer is to take place and the amount of
funds to be transferred. Any such election shall be at the absolute discretion
of the individual Participant and shall be binding upon the Trustee. Upon any
such election being made, the amount of such funds to be transferred shall be
deducted from his Account as appropriate and added to a Controlled Account of
the Participant. All dividends and interest thereafter received with respect to
such transferred funds, as well as any appreciation or depreciation in his
investments, shall be added to or deducted from his Controlled Account.
If a Participant wishes to make such an election to transfer
funds from the Trust Fund to a Controlled Fund as of a date other than a
Valuation Date, the Trustee may defer such transfer until the next succeeding
Valuation Date or, in the Trustee's discretion, make such transfer, provided
that the Trustee determines that the nature of the
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assets in the Trust Fund is such that it is feasible and practical to make, as
of the date of such transfer, the adjustments to Participants' Accounts for
which provision is made in the Plan, as if such date is a Valuation Date.
The Trustee shall not have any investment responsibility with
respect to a Participant's Controlled Fund. In the event that a Participant
elects to have any such funds transferred to a Controlled Fund and invested in
particular securities or assets pursuant to this Section, the Trustee shall not
be liable for any loss or damage resulting from the investment decision of the
Participant. As of any Valuation Date, the Participant may elect to have all
or any portion of any cash contained in his Controlled Fund transferred back to
the Trust Fund, in which case such cash shall be invested by the Trustee
together with other assets held in the Trust Fund. Any such election shall be
made by giving notice thereof to the Trustee as the Trustee deems necessary,
and the notice shall specify the amount of cash to be transferred.
As of the said Valuation Date, the amount of such funds to be
so transferred which is attributable to the balance in the Participant's
Controlled Account shall be deducted from such Account and added to the
appropriate Account of the Participant.
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ARTICLE VII
LOANS
3.7.1 Authorization. If the Employer elects in the
Adoption Agreement to permit loans to Participants or Beneficiaries, the
Trustee shall establish a participant loan program in compliance with Labor
Regulation 2550.408b. The terms of such participant loan program shall be in
writing and shall constitute part of the Plan. Such terms shall include:
(a) The identity of the person or positions authorized to
administer the participant loan program;
(b) A procedure for applying for loans;
(c) The basis on which loans will be approved or denied;
(d) Limitations (if any) on the types and amount of loans
offered;
(e) The procedure under the program for determining a
reasonable rate of interest;
(f) The types of collateral which may secure a
participant loan; and
(g) The events constituting default and the steps that
will be taken to preserve plan assets in the event of default.
3.7.2 Spousal Consent. A Participant must obtain the
written consent of his spouse, if any, to the use of the Participant's interest
in the Plan as security for the loan within ninety (90) days before the date on
which the loan is to be so secured. A new consent must be obtained whenever
the amount of the loan is increased or if the loan is renegotiated, extended,
renewed or otherwise revised. The form of the consent must acknowledge the
effect of such consent and be witnessed by a Plan representative or a notary
public but shall be deemed to meet any such requirements relating to the
consent of any subsequent spouse. Such consent shall thereafter be binding
with respect to the consenting spouse or any subsequent spouse with respect to
that loan.
If a valid spousal consent has been obtained, then
notwithstanding any other provision of the Plan, the portion of the
Participant's vested Account balance used as a security interest held by the
Plan by reason of a loan outstanding to the Participant shall be taken into
account for purposes of determining the amount of the
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Account balance payable at the time of death or distribution but only if the
reduction is used as repayment of the loan. If less than the entire amount of
the Participant's vested Account balance (determined without regard to the
preceding sentence) is payable to the surviving spouse, the Account balance
shall be adjusted by first reducing the vested Account balance by the amount of
the security used as repayment of the loan and then determining the benefit
payable to the surviving spouse.
3.7.3 Limitations. Except to the extent provided in the
participant loan program, in no event shall the amount loaned to any
Participant or Beneficiary exceed the lesser of (a) fifty thousand dollars
($50,000.00) (reduced by the excess, if any, of the highest outstanding balance
of loans from the Plan) during the one year period ending on the day before the
date on which the loan was made over the outstanding balance of loans from the
Plan on the date on which such loan was made) or (b) one-half of the sum of the
vested and nonforfeitable interest in his Accounts, determined as of the
Valuation Date coinciding with or immediately preceding such loan. For the
purposes hereof, all loans from all plans of the Employer and other members of
a group of employers described in Sections 414(b), (c), (m) and (o) of the Code
shall be aggregated. All loans must be adequately secured and bear a
reasonable interest rate. In the event of a default foreclosure on the note
evidencing the loan and attachment of the security shall not occur until a
distributable event occurs.
3.7.4 Availability. Loans, if any, must be available to
all Participants and Beneficiaries without regard to any individual's race,
color, religion, sex, age or national origin. Loans shall be made available to
all Participants and Beneficiaries and loans shall not be made available to
Highly Compensated Employees in an amount greater than the amount made
available to other employees.
3.7.5 Prohibitions. A loan shall not be made to a five
(5%) percent or greater shareholder-employee of an S corporation, an owner of
more than ten (10%) percent of either the capital interest or the profits
interest of an unincorporated Employer, a family member (as defined in Section
267(c)(4) of the Code) of such persons, or a corporation controlled by such
persons through the ownership, directly or indirectly, of fifty (50%) percent
or more of the total voting power or value of all shares of all classes of
stock of the corporation, unless an exemption for the loan is obtained pursuant
to Section 408 of the Act.
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ARTICLE VIII
BENEFICIARIES
3.8.1 Designation of Beneficiaries. Each Participant shall
have the right to designate a Beneficiary or Beneficiaries and contingent or
successive Beneficiaries to receive any benefits provided by this Plan which
become payable upon the Participant's death. The Beneficiaries may be changed
at any time or times by the filing of a new designation with the Plan
Administrator, and the most recent designation shall govern. Notwithstanding
the foregoing and subject to the provisions of Section 2.5.2(e)(3), the
designated Beneficiary shall be the surviving spouse of the Participant, unless
such surviving spouse consents in writing to an alternate designation and the
terms of such consent acknowledge the effect of such alternate designation and
the consent is witnessed by a representative of the Plan or by a notary public.
A spouse may not revoke the consent without the approval of the Participant.
The designation of a Beneficiary other than the spouse of the Participant or a
form of benefits with the consent of such spouse may not be changed without the
consent of such spouse and any consent must acknowledge the specific non-spouse
Beneficiary, including any class of Beneficiaries or any contingent
Beneficiaries.
3.8.2 Absence or Death of Beneficiaries. If a Participant
dies without having a beneficiary designation then in force, or if all of the
Beneficiaries designated by a Participant predecease him, his Beneficiary shall
be his surviving spouse, or if none, his surviving children, equally, or if
none, such other heirs or the executor or administrator of his estate as the
Plan Administrator shall select.
If a Participant dies survived by Beneficiaries designated by
him and if all such surviving Beneficiaries thereafter die before complete
distribution of such deceased Participant's interest, the estate of the last of
such designated Beneficiaries to survive shall be deemed to be the Beneficiary
of the undistributed portion of such interest.
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ARTICLE IX
CLAIMS
3.9.1 Claim Procedure. Any Participant or Beneficiary who
is entitled to a payment of a benefit for which provision is made in this Plan
shall file a written claim with the Plan Administrator on such forms as shall
be furnished to him by the Plan Administrator and shall furnish such evidence
of entitlement to benefits as the Plan Administrator may reasonably require.
The Plan Administrator shall notify the Participant or Beneficiary in writing
as to the amount of benefit to which he is entitled, the duration of such
benefit, the time the benefit is to commence and other pertinent information
concerning his benefit. If a claim for benefit is denied by the Plan
Administrator, in whole or in part, the Plan Administrator shall provide
adequate notice in writing to the Participant or Beneficiary whose claim for
benefit has been denied within ninety (90) days after receipt of the claim
unless special circumstances require an extension of time for processing the
claim. If such an extension of time for processing is required, written notice
indicating the special circumstances and the date by which a final decision is
expected to be rendered shall be furnished to the Participant or Beneficiary.
In no event shall the period of extension exceed one hundred eighty (180) days
after receipt of the claim. The notice of denial of the claim shall set forth
(a) the specific reason or reasons for the denial; (b) specific reference to
pertinent Plan provisions on which the denial is based; (c) a description of
any additional material or information necessary for the claimant to perfect
the claim and an explanation of why such material or information is necessary;
and (d) a statement that any appeal of the denial must be made by giving to the
Plan Administrator, within sixty (60) days after receipt of the notice of the
denial, written notice of such appeal, such notice to include a full
description of the pertinent issues and basis of the claim. The Participant or
Beneficiary (or his duly authorized representative) may review pertinent
documents and submit issues and comments in writing to the Plan Administrator.
If the Participant or Beneficiary fails to appeal such action to the Plan
Administrator in writing within the prescribed period of time, the Plan
Administrator's adverse determination shall be final, binding and conclusive.
3.9.2 Appeal. If the Plan Administrator receives from a
Participant or a Beneficiary, within the prescribed period of time, a notice of
an appeal of the denial of a claim for benefit, such notice and all relevant
materials shall immediately be submitted to the Employer. The Employer may
hold a hearing or otherwise ascertain such facts as it deems necessary and
shall render a decision which shall be binding upon both parties. The decision
of the Employer shall be made within sixty (60) days after the receipt by the
Plan
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Administrator of the notice of appeal, unless special circumstances require an
extension of time for processing, in which case a decision of the Employer
shall be rendered as soon as possible but not later than one hundred twenty
(120) days after receipt of the request for review. If such an extension of
time is required, written notice of the extension shall be furnished to the
claimant prior to the commencement of the extension. The decision of the
Employer shall be in writing, shall include specific reasons for the decision,
written in a manner calculated to be understood by the claimant, as well as
specific references to the pertinent Plan provisions on which the decision is
based and shall be promptly furnished to the claimant.
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ARTICLE X
AMENDMENT AND TERMINATION
3.10.1 Right to Amend.
(a) The Employer may at any time or times amend the Plan
and the provisions of the Adoption Agreement, in whole or in part.
Subject to subsection (b), an Employer that amends the Plan shall no
longer participate in this prototype plan and shall be considered to
have an individually designed plan.
(b) The Employer may change the choice of options in the
Adoption Agreement, add overriding language in the Adoption Agreement
when such language is necessary to satisfy Section 415 or 416 of the
Code because of the required aggregation of multiple plans and add
certain model amendments published by the Internal Revenue Service
which specifically provide that their adoption shall not cause the
Plan to be treated as individually designed. An Employer that amends
the Plan for any other reason, including a waiver of the minimum
funding requirements under Section 412(d) of the Code, shall no longer
participate in this prototype plan and shall be considered to have an
individually designed plan.
3.10.2 Manner of Amending. Each amendment of this Plan
shall be made by delivery to the Trustee of a copy of the resolution of the
Employer which sets forth such amendment.
3.10.3 Limitations On Amendments. No amendment shall be
made to this Plan which shall:
(a) Directly or indirectly operate to give the Employer
any interest whatsoever in the assets of the Trust or to deprive any
Participant or Beneficiary of his vested and nonforfeitable interest
in the assets of the Trust as then constituted, or cause any part of
the income or corpus of the Trust to be used for, or diverted to
purposes other than the exclusive benefit of Employees or their
Beneficiaries;
(b) Increase the duties or liabilities of the Trustee
without the Trustee's prior written consent;
(c) Change the vesting schedule under the Plan if the
nonforfeitable percentage of the accrued benefit derived from Employer
contributions (determined as of the later of the date such amendment
is adopted or the date such amendment becomes effective) of any
Participant is less than such nonforfeitable percentage computed
without regard to such amendment; or
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(d) Reduce the accrued benefit of a Participant within
the meaning of Section 411(d)(6) of the Code, except to the extent permitted
under Section 412(c)(8) of the Code. An amendment which has the effect of
decreasing a Participant's account balance or eliminating an optional form of
benefit with respect to benefits attributable to service before the amendment
shall be treated as reducing an accrued benefit.
If a Plan amendment changes the vesting schedule or the Plan is
amended in any way that directly or indirectly affects the computation of the
Participant's nonforfeitable percentage, each Participant who has completed
three (3) or, in the case of Participants who do not have at least one (1) Hour
of Service in any Plan Year beginning after 1988, five (5) or more Years of
Service may elect within a reasonable period after the adoption of such
amendment to have his nonforfeitable percentage computed without regard to such
amendment or change. The period during which the election may be made shall
commence with the date the amendment is adopted or deemed to be made and shall
end on the latest of sixty (60) days after:
(i) the amendment is adopted;
(ii) the amendment becomes effective; or
(iii) the Participant is issued written notice of
the amendment by the Employer or Plan Administrator.
3.10.4 Voluntary Termination. The Employer may terminate
the Plan at any time by delivering to the Trustee an instrument in writing
which designates such termination. Following termination of the Plan, the
Trust will continue until the Distributable Benefit of each Participant has
been distributed.
3.10.5 Involuntary Termination. The Plan shall terminate if
(a) the Employer is dissolved or adjudicated bankrupt or insolvent in
appropriate proceedings, or if a general assignment is made by the Employer for
the benefit of creditors, or (b) the Employer loses its identity by
consolidation or merger into one or more corporations or organizations, unless
within ninety (90) days after such consolidation or merger, such corporations
or organizations elect to continue the Plan.
3.10.6 Withdrawal By Employer. The Employer may withdraw
from participation under the Plan without terminating the Trust upon making a
transfer of the Trust assets to another Plan which shall be deemed to
constitute an amendment in its entirety of the Trust.
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3.10.7 Powers Pending Final Distribution. Until final
distribution of the assets of the Trust, the Plan Administrator and Trustee
shall continue to have all the powers provided under this Plan as are necessary
for the orderly administration, liquidation and distribution of the assets of
the Trust.
3.10.8 Delegation to Sponsor. The Employer expressly
delegates authority to the Plan Sponsor the right to amend any part of the Plan
on its behalf to the extent necessary to preserve the qualified status of the
Plan. For purposes of amendments by the Plan Sponsor, the Mass Submitter shall
be recognized as the agent of the Plan Sponsor. If the Plan Sponsor does not
adopt the amendments made by the Mass Submitter, the Plan shall no longer be
identical to or a minor modifier of the mass submitter plan. The Plan Sponsor
shall submit a copy of the amendment to each Employer who has adopted the Plan
after first having received a ruling or favorable determination from the
Internal Revenue Service that the Plan as amended satisfies the applicable
requirements of the Code. The Employer may revoke the authority of the Plan
Sponsor to amend the Plan on its behalf by written notice to the Plan Sponsor
of such revocation.
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ARTICLE XI
PORTABILITY
3.11.1 Continuance by Successor. In the event of the
dissolution, consolidation or merger of the Employer, or the sale by the
Employer of its assets, the resulting successor person or persons, firm or
corporations may continue this Plan by (a) adopting the Plan by appropriate
resolution; (b) appointing a new Trustee as though the Trustee (including all
members of a group of individuals acting as Trustee) had resigned; and (c)
executing a proper agreement with the new Trustee. In such event, each
Participant in this Plan shall have an interest in the Plan after the
dissolution, consolidation, merger, or sale of assets, at least equal to the
interest which he had in the Plan immediately before the dissolution,
consolidation, merger or sale of assets. Any Participants who do not accept a
position with such successor within a reasonable time shall be deemed to be
terminated. If, within ninety (90) days from the effective date of such
dissolution, consolidation, merger, or sale of assets, such successor does not
adopt this Plan, as provided herein, the Plan shall automatically be terminated
and deemed to be an involuntary termination.
3.11.2 Merger With Other Plan. In the event of the merger
or consolidation with, or transfer of assets or liabilities to, any other
deferred compensation plan and trust, each Participant shall have an interest
in such other plan which is equal to or greater than the interest which he had
in this Plan immediately before such merger, consolidation or transfer, and if
such other plan thereafter terminates, each Participant shall be entitled to a
Distributable Benefit which is equal to or greater than the Distributable
Benefit to which he would have been entitled immediately before such merger,
consolidation or transfer if this Plan had then been terminated.
3.11.3 Transfer From Other Plans. The Employer may cause
all or any of the assets held in connection with any other plan or trust which
is maintained by the Employer for the benefit of its employees and satisfies
the applicable requirements of the Code relating to qualified plans and trusts
to be transferred to the Trustee, whether such transfer is made pursuant to a
merger or consolidation of this Plan with such other plan or trust or for any
other allowable purpose. In addition, the Employer, in its discretion, may
permit rollover to the Trustee of assets held for the benefit of an Employee in
a conduit Individual Retirement Account, a terminated plan of the Employer, or
any other plan or trust which is maintained by some other employer for the
benefit of its employees and satisfies the applicable requirements of the Code
relating to qualified plans and trusts. Any such assets so transferred to the
Trustee shall be accompanied by written instructions from the employer, or the
trustee, custodian or indi-
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vidual holding such assets, setting forth the name of each Employee for whose
benefit such assets have been transferred and showing separately the respective
contributions by the employer and by the Employee and the current value of the
assets attributable thereto. Upon receipt by the Trustee of such assets, the
Trustee shall place such assets in a Segregated Fund for the Participant and
the Employee shall be deemed to be one hundred percent (100%) vested and have a
nonforfeitable interest in any such assets. Notwithstanding any provisions
herein to the contrary, unless the Plan provides a life annuity distribution
option or the Participant and his spouse have signed a written waiver of their
rights to the annuity options in a form which satisfies the waiver requirements
of Section 417 of the Code, the Plan shall not be a direct or indirect
transferee of a defined benefit pension plan, money purchase pension plan,
target benefit pension plan, stock bonus or profit sharing plan which is
subject to the survivor annuity requirements of Section 401(a)(11) and Section
417 of the Code.
3.11.4 Transfer to Other Plans. The Trustee, upon written
direction by the Employer, shall transfer some or all of the assets held under
the Trust to another plan or trust of the Employer meeting the requirements of
the Code relating to qualified plans and trusts, whether such transfer is made
pursuant to a merger or consolidation of this Plan with such other plan or
trust or for any other allowable purpose. In addition, upon the termination of
employment of any Participant and receipt by the Plan Administrator of a
request in writing, the Participant may request that any distribution from the
Trust to which he is entitled shall be transferred to an Individual Retirement
Account, an Individual Retirement Annuity, or any other plan or trust which is
maintained by some other employer for the benefit of its employees and
satisfies the applicable requirements of the Code relating to qualified plans
and trusts. Upon receipt of any such written request, the Plan Administrator
shall cause the Trustee to transfer the assets so directed and, as appropriate,
shall direct the Insurer to transfer to the new trustee any applicable
insurance policies issued by it.
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ARTICLE XII
MISCELLANEOUS
3.12.1 No Reversion to Employer. Except as specifically
provided in the Plan, no part of the corpus or income of the Trust shall revert
to the Employer or be used for, or diverted to purposes other than for the
exclusive benefit of Participants and their Beneficiaries.
3.12.2 Employer Actions. Any action by the Employer
pursuant to the provisions of the Plan shall be evidenced by appropriate
resolution or by written instrument executed by any person authorized by the
Employer to take such action.
3.12.3 Execution of Receipts and Releases. Any payment to
any person eligible to receive benefits under this Plan, in accordance with the
provisions of the Plan, shall, to the extent thereof, be in full satisfaction
of all claims hereunder. The Plan Administrator may require such person, as a
condition precedent to such payment, to execute a receipt and release therefor
in such form as he shall determine.
3.12.4 Rights of Participants Limited. Neither the creation
of this Plan and Trust nor anything contained in this Plan or the Adoption
Agreement shall be construed as giving any Participant, Beneficiary or Employee
any equity or other interest in the assets, business or affairs of the Employer,
or the right to complain about any action taken by or about any policy adopted
or pursued by, the Employer, or as giving any Employee the right to be retained
in the service of the Employer; and all Employees shall remain subject to
discharge to the same extent as if the Plan had never been executed. Prior to
the time that distributions are made in conformity with the provisions of the
Plan, neither the Participants, nor their spouses, Beneficiaries, heirs-at-law,
or legal representatives shall receive or be entitled to receive cash or any
other thing of current exchangeable value, from either the Employer or the
Trustee as a result of the Plan or the Trust.
3.12.5 Persons Dealing With Trustee Protected. No person
dealing with the Trustee shall be required or entitled to see to the
application of any money paid or property delivered to the Trustee, or
determine whether or not the Trustee is acting pursuant to the authorities
granted to the Trustee hereunder or to authorizations or directions herein
required. The certificate of the Trustee that the Trustee is acting in
accordance with the Plan shall protect any person relying thereon.
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3.12.6 Protection of the Insurer. An Insurer shall not be
responsible for the validity of the Plan or Trust and shall have no
responsibility for action taken or not taken by the Trustee, for determining
the propriety of accepting premium payments or other contributions, for making
payments in accordance with the direction of the Trustee, or for the
application of such payments. The Insurer shall be fully protected in dealing
with any representative of the Employer or any one of a group of individuals
acting as Trustee. Until written notice of a change of Trustee has been
received by an Insurer at its home office, the Insurer shall be fully protected
in dealing with any party acting as Trustee according to the latest information
received by the Insurer at its home office.
3.12.7 No Responsibility for Act of Insurer. Neither the
Employer, the Plan Administrator nor the Trustee shall be responsible for any
of the following, nor shall they be liable for instituting action in connection
with:
(a) The validity of policies or policy provisions;
(b) Failure or refusal by the Insurer to provide benefits
under a policy;
(c) An act by a person which may render a policy invalid
or unenforceable; or
(d) Inability to perform or delay in performing an act,
which inability or delay is occasioned by a provision of a policy or a
restriction imposed by the Insurer.
3.12.8 Inalienability. The right of any Participant or his
Beneficiary in any distribution hereunder or to any separate Account shall not
be subject to alienation, assignment or transfer, voluntarily or involuntarily,
by operation of law or otherwise, except as may be expressly permitted herein.
No Participant shall assign, transfer, or dispose of such right nor shall any
such right be subjected to attachment, execution, garnishment, sequestration,
or other legal, equitable, or other process. The preceding shall also apply to
the creation, assignment, or recognition of a right to any benefit payable with
respect to a Participant pursuant to a domestic relations order, unless such
order is determined to be a qualified domestic relations order, as defined in
Section 414(p) of the Code, or any domestic relations order entered before
January 1, 1985.
In the event a Participant's benefits are attached by order of
any court, the Plan Administrator may bring an action for a declaratory
judgment in a court of competent jurisdiction to determine the proper recipient
of the benefits to be paid by the Plan. During the pendency of the action, the
Plan Administrator shall cause any
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benefits payable to be paid to the court for distribution by the court as it
considers appropriate.
3.12.9 Domestic Relations Orders. The Plan Administrator
shall adhere to the terms of any judgment, decree or order (including approval
of a property settlement agreement) which relates to the provision of child
support, alimony payments, or marital property rights to a spouse, former
spouse, child or other dependent of a Participant and is made pursuant to a
state domestic relations law (including a community property law) and which
creates or recognizes the existence of an alternate payee's right to, or
assigns to an alternate payee the right to, receive all or a portion of the
benefits payable with respect to a Participant.
Any such domestic relations order must clearly specify the
name and last known mailing address of the Participant and the name and mailing
address of each alternate payee covered by the order, the amount or percentage
of the Participant's benefit to be paid by the Plan to each such alternate
payee, or the manner in which such amount or percentage is to be determined,
the number of payments or period to which such order applies, and each plan to
which such order applies.
Any such domestic relations order shall not require the Plan
to provide any type or form of benefit, or any option not otherwise provided
under the Plan, to provide increased benefits (determined on the basis of
actuarial value) or the payment of benefits to an alternate payee which are
required to be paid to another alternate payee under another order previously
determined to be a qualified domestic relations order. Notwithstanding the
foregoing sentence, a domestic relations order may require the payment of
benefits to an alternate payee before the Participant has separated from
service on or after the date on which the Participant attains or would have
attained the earliest retirement age under the Plan as if the Participant had
retired on the date on which such payment is to begin under such order (but
taking into account only the present value of the benefits actually accrued and
not taking into account the present value of any Employer subsidy for early
retirement) and in any form in which such benefits may be paid under the Plan
to the Participant (other than the form of a joint and survivor annuity with
respect to the alternate payee and his or her subsequent spouse). The interest
rate assumption used in determining the present value shall be five (5%)
percent. For these purposes, the earliest retirement age under the Plan means
the earlier of: (a) the date on which the Participant is entitled to a
distribution under the Plan, or (b) the later of the date the Participant
attains age 50, or the earliest date on which the Participant could begin
receiving benefits under the Plan if the Participant separated from service.
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If the Employer so elects in the Adoption Agreement,
distributions may be made to an alternate payee even though the Participant may
not receive a distribution because he continues to be employed by the Employer.
To the extent provided in the qualified domestic relations
order, the former spouse of a Participant shall be treated as a surviving
spouse of such Participant for purposes of Sections 401(a)(11) and 417 of the
Code (and any spouse of the Participant shall not be treated as a spouse of the
Participant for such purposes) and if married for at least one (1) year, the
surviving former spouse shall be treated as meeting the requirements of Section
417(d) of the Code.
The Plan Administrator shall promptly notify the Participant
and each alternate payee of the receipt of a domestic relations order by the
Plan and the Plan's procedures for determining the qualified status of domestic
relations orders. Within a reasonable period after receipt of a domestic
relations order, the Plan Administrator shall determine whether such order is a
qualified domestic relations order and shall notify the Participant and each
alternate payee of such determination. If the Participant or any affected
alternate payee disagrees with the determinations of the Plan Administrator,
the disagreeing party shall be treated as a claimant and the claims procedure
of the Plan shall be followed. The Plan Administrator may bring an action for
a declaratory judgment in a court of competent jurisdiction to determine the
proper recipient of the benefits to be paid by the Plan.
During any period in which the issue of whether a domestic
relations order is a qualified domestic relations order is being determined (by
the Plan Administrator, by a court of competent jurisdiction or otherwise), the
Plan Administrator shall separately account for the amounts which would have
been payable to the alternate payee during such period if the order had been
determined to be a qualified domestic relations order. If, within the eighteen
(18) month period beginning on the date on which the first payment would be
required to be made under the domestic relations order, the order (or
modification thereof) is determined to be a qualified domestic relations order,
the Plan Administrator shall pay the segregated amounts, including any interest
thereon, to the person or persons entitled thereto. If within such eighteen
(18) month period it is determined that the order is not a qualified domestic
relations order or the issue as to whether such order is a qualified domestic
relations order is not resolved, then the Plan Administrator shall pay the
segregated amounts, including any interest thereon, to the person
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or persons who would have been entitled to such amounts if there had been no
order. Any determination that an order is a qualified domestic relations order
which is made after the close of the eighteen (18) month period shall be
applied prospectively only.
3.12.10 Authorization to Withhold Taxes. The Trustee is
authorized in accordance with applicable law to withhold from distribution to
any payee such sums as may be necessary to cover federal and state taxes which
may be due with respect to such distributions.
3.12.11 Missing Persons. If the Trustee mails by registered
or certified mail, postage prepaid, to the last known address of a Participant
or Beneficiary, a notification that the Participant or Beneficiary is entitled
to a distribution and if (a) the notification is returned by the post office
because the addressee cannot be located at such address and if neither the
Employer, the Plan Administrator nor the Trustee shall have any knowledge of
the whereabouts of such Participant or Beneficiary within three (3) years from
the date such notification was mailed, or (b) within three (3) years after such
notification was mailed to such Participant or Beneficiary, he does not respond
thereto by informing the Trustee of his whereabouts, the ultimate disposition
of the then undistributed balance of the Distributable Benefit of such
Participant or Beneficiary shall be determined in accordance with the then
applicable Federal laws, rules and regulations. If any portion of the
Distributable Benefit is forfeited because the Participant or Beneficiary
cannot be found, such portion shall be reinstated if a claim is made by the
Participant or Beneficiary.
3.12.12 Notices. Any notice or direction to be given in
accordance with the Plan shall be deemed to have been effectively given if hand
delivered to the recipient or sent by certified mail, return receipt requested,
to the recipient at the recipient's last known address. At any time that a
group of individuals is acting as Trustee, notice to the Trustee may be given
by giving notice to any one or more of such individuals.
3.12.13 Governing Law. The provisions of this Plan shall be
construed, administered and enforced in accordance with the provisions of the
Act and, to the extent applicable, the laws of the state in which the Employer
has its principal place of business. All contributions to the Trust shall be
deemed to take place in such state.
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3.12.14 Severability of Provisions. In the event that any
provision of this Plan shall be held to be illegal, invalid or unenforceable
for any reason, said illegality, invalidity or unenforceability shall not
affect the remaining provisions, but shall be fully severable and the Plan
shall be construed and enforced as if said illegal, invalid or unenforceable
provisions had never been inserted herein.
3.12.15 Gender and Number. Whenever appropriate, words used
in the singular shall include the plural, and the masculine gender shall
include the feminine gender.
3.12.16 Binding Effect. The Plan and Adoption Agreement, and
all actions and decisions hereunder, shall be binding upon the heirs,
executors, administrators, successors and assigns of any and all parties hereto
and Participants, present and future.
3.12.17 Qualification Under Internal Revenue Laws. The
Employer intends that the Trust qualify under the applicable provisions of the
Code. Until advised to the contrary, the Trustee may assume that the Trust is
so qualified and is entitled to tax exemption under the Code. If the Plan of
the Employer fails to attain or retain qualification, the Plan of the Employer
shall no longer participate in this prototype and shall be considered an
individually designed plan.
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-3790 of Central Financial Acceptance Corporation of our report dated April
12, 1996 (June 25, 1996 as to the effects of the reorganization described in
Notes 1 and 11), appearing in the Prospectus, which is part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Los Angeles, California
June 25, 1996
<PAGE> 1
EXHIBIT 23.5
June 19, 1996
CONSENT OF STRATEGY RESEARCH CORPORATION
Strategy Research Corporation hereby consents to be named as the source
for, and consent to the use of the demographic information quoted from the SRC
copyrighted report entitled 1996 U.S. Hispanic Market Study as such quoted
information appears in the Registration Statement on Form S-1 of Central
Financial Acceptance Corporation (Registration No. 333-3790) as filed with the
Securities and Exchange Commission, and any amendments or supplements thereto.
STRATEGY RESEARCH CORPORATION
By: /s/ RICHARD W. TOBIN
--------------------------------------
Name: Richard W. Tobin
Title: President
